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Economy

Citigroup CEO Calls Jobs ‘Our Number One Priority’ Weeks After Announcing 4,500 Layoffs

As Reuters’ Felix Salmon noted, Citigroup CEO Vikram Pandit went to the Davos Economic Forum to announce that job creation should be a top priority for the international business community:

The 42nd World Economic Forum Annual Meeting closed today, with business leaders urging resolute action to promote growth and employment, particularly among young people. “Jobs should be our number one priority,” declared Annual Meeting Co-Chair Vikram Pandit, Chief Executive Officer of Citi, in a session on the global agenda for 2012. “Ultimately it is about growth. Nothing creates jobs better than growth.”

But this proclamation comes just seven weeks after Citigroup announced 4,500 job cuts, and some analysts think those job cuts are just the “tip of the iceberg.” Overall, the financial industry cut 200,000 jobs in 2011. Bank of America has announced 30,000 job cuts that will take place over the next several years.

“Everybody knows, in any case, that profits are Pandit’s number one priority; to be honest I’d be surprised if jobs are on his priority list at all,” Salmon noted. “The markets like it when big banks cut jobs, and hate it when they add jobs. And Pandit’s job is to do what the market wants. Which is, fire people.”

To explain how to boost growth, Pandit broke out the favorite right-wing canard about “uncertainty” holding back job creation. But as economist Bruce Bartlett has pointed out, “regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue an agenda supported by the business community year in and year out.”

NEWS FLASH

SEC Now Seeks Power To Impose Greater Fines On Firms That Commit Fraud | Federal Judge Jed Rakoff dealt the Securities and Exchange Commission a serious reprimand when he rejected a $285 million settlement it reached with Citigroup, Inc. Smarting from the blow, the SEC is asking Congress to enact legislation that would give it “the power to impose much-larger penalties on financial firms and individuals that commit fraud.” In a letter to the Senate Banking Committee Monday, SEC Chairman Mary Schapiro asked for the power to impose fines up to nine times greater than the maximum currently allowed; to increase the maximum penalty to triple the net profit made from the fraud; and to triple penalties for repeat offenders who have been subject to SEC action or criminal conviction in the preceding five years. Had these rules been in place for the Citigroup case, “the maximum penalty would jump to $1.44 billion from $160 million.”

NEWS FLASH

Sen. Grassley Praises Judge Who Blocked Citigroup Settlement: ‘Judge Rakoff Is Right’ | Yesterday, Federal Judge Jed Rakoff formally rejected a deal between Citigroup and the Securities and Exchange Commission that would have allowed the bank to pay $285 million to settle charges that it misled investors in mortgage securities. Rakoff said that there is “an overriding public interest in knowing the truth about the financial markets,” after previously deriding the settlement as “just for show.” Today, Sen. Chuck Grassley (R-IA) threw his support to Rakoff, saying in a statement, “Judge Rakoff is right to ask for information. The SEC needs to provide a clear rationale for the enforcement penalties in this case and in others. Otherwise, the public is in the dark about whether the settlements are adequate and the court’s role is reduced to a rubber stamp. A settle and slap-on-the-wrist approach has not and will not deter the defrauding of investors.”

NEWS FLASH

Federal Judge Strikes Down Citigroup Settlement, Says Public Needs A Trial | Federal judge Jed Rakoff just rejected “a $285 million settlement that Citigroup reached with the Securities and Exchange Commission, citing a need for truth about the financial markets,” choosing instead to force the case to be taken to public trial. The “judge wrote that there is an overriding public interest in knowing the truth about the financial markets. He set a July 16 trial date for the case.”

NEWS FLASH

Federal Judge Slams SEC’s Fraud Settlement With Citigroup: ‘It’s Just For Show’ | Last month, Citigroup announced that it had settled with the Securities and Exchange Commission over charges that the bank misled investors in a derivatives deal and then bet against them. Under the terms of the settlement, Citi agreed to pay $285 million and made a promise to never again break anti-fraud laws. The SEC accepted that pledge, even though banks have repeatedly made and broken such promises in recent years. Yesterday, U.S. District Judge Jed Rakoff slammed the settlement, questioning why the SEC “didn’t force Citigroup Inc. to admit to ‘what the facts are’ before the agency agreed to settle.” “Why does that make any sense in this context?” the judge asked. “It’s just for show.”

NEWS FLASH

VIDEO: Citibank Customer Arrested In New York For Trying To Close Her Bank Account | More than 20 Citibank customers were arrested for trying to close their bank accounts in New York City today. According to reports, after more than four dozen people entered the LaGuardia Place Citibank to close their accounts, 23 Citibank customers were locked inside the bank and subsequently arrested.

Watch a video of the incident (relevant part begins at 1:32):

NEWS FLASH

Citigroup Head Vikram Pandit Says He’s Willing To Talk To Occupy Wall Street Protesters | Vikram Pandit, who serves as the chief executive officer of Citigroup, told a breakfast organized by Fortune magazine that he finds the grievances of Occupy Wall Street “completely understandable.” Pandit continued, “I’d talk about the fact that they should hold Citi and the financial institutions accountable for practicing responsible finance. I’d be happy to talk to them any time they want to come up.”

Economy

11 Facts You Need To Know About The Nation’s Biggest Banks

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The Occupy Wall Street protests that began in New York City more than three weeks ago have now spread across the country. The choice of Wall Street as the focal point for the protests — as even Federal Reserve Chairman Ben Bernanke said — makes sense due to the big bank malfeasance that led to the Great Recession.

While the Dodd-Frank financial reform law did a lot to ensure that a repeat of the 2008 financial crisis won’t occur — through regulation of derivatives, a new consumer protection agency, and new powers for the government to dismantle failing banks — the biggest banks still have a firm grip on the financial system, even more so than before the 2008 financial crisis. Here are eleven facts that you need to know about the nation’s biggest banks:

Bank profits are highest since before the recession…: According to the Federal Deposit Insurance Corp., bank profits in the first quarter of this year were “the best for the industry since the $36.8 billion earned in the second quarter of 2007.” JP Morgan Chase is currently pulling in record profits.

…even as the banks plan thousands of layoffs: Banks, including Bank of America, Barclays, Goldman Sachs, and Credit Suisse, are planning to lay off tens of thousands of workers.

Banks make nearly one-third of total corporate profits: The financial sector accounts for about 30 percent of total corporate profits, which is actually down from before the financial crisis, when they made closer to 40 percent.

Since 2008, the biggest banks have gotten bigger: Due to the failure of small competitors and mergers facilitated during the 2008 crisis, the nation’s biggest banks — including Bank of America, JP Morgan Chase, and Wells Fargo — are now bigger than they were pre-recession. Pre-crisis, the four biggest banks held 32 percent of total deposits; now they hold nearly 40 percent.

The four biggest banks issue 50 percent of mortgages and 66 percent of credit cards: Bank of America, JP Morgan Chase, Wells Fargo and Citigroup issue one out of every two mortgages and nearly two out of every three credit cards in America.

The 10 biggest banks hold 60 percent of bank assets: In the 1980s, the 10 biggest banks controlled 22 percent of total bank assets. Today, they control 60 percent.

The six biggest banks hold assets equal to 63 percent of the country’s GDP: In 1995, the six biggest banks in the country held assets equal to about 17 percent of the country’s Gross Domestic Product. Now their assets equal 63 percent of GDP.

The five biggest banks hold 95 percent of derivatives: Nearly the entire market in derivatives — the credit instruments that helped blow up some of the nation’s biggest banks as well as mega-insurer AIG — is dominated by just five firms: JP Morgan Chase, Goldman Sachs, Bank of America, Citibank, and Wells Fargo.

Banks cost households nearly $20 trillion in wealth: Almost $20 trillion in wealth was destroyed by the Great Recession, and total family wealth is still down “$12.8 trillion (in 2011 dollars) from June 2007 — its last peak.”

Big banks don’t lend to small businesses: The New Rules Project notes that the country’s 20 biggest banks “devote only 18 percent of their commercial loan portfolios to small business.”

Big banks paid 5,000 bonuses of at least $1 million in 2008: According to the New York Attorney General’s office, “nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008.”

In the last few decades, regulations on the biggest banks have been systematically eliminated, while those banks engineered more and more ways to both rip off customers and turn ever-more complex trading instruments into ever-higher profits. It makes perfect sense, then, that a movement calling for an economy that works for everyone would center its efforts on an industry that exemplifies the opposite.

Yglesias

“Private” Investors in Citigroup

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From a Wall Street Journal article on possible plans for a larger federal ownership stake in Citigroup:

Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.

The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their shares diluted. A larger ownership stake by the federal government could fuel speculation that other troubled banks will line up for similar agreements. [...] As part of the plan, Citigroup officials hope to persuade private investors that have bought preferred shares — such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority — to follow the government’s lead in converting some of those stakes into common stock, according to people familiar with the matter. That would further bolster an obscure but increasingly pivotal measure of banks’ capital known as “tangible common equity,” or TCE.

Words like “Government of” and “Authority” when paired with the names of countries are usually indications that we’re dealing with government entities, not private ones. The upshot of this would be to turn Citigroup into a company that was, in essence, jointly owned by a few different governments.

Yglesias

A Viable Alternative to Nationalization?

Brad DeLong recommends this plan from Susan Woodward, Robert Hall, and Jeremy Bulow as “the cleverest plan I have yet seen.”

And, indeed, it is clever. Here’s the plan in chart form:

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The other two columns show the balance sheets of the new good bank and bad bank. The good bank will continue to operate under the Citi brands as a well-capitalized operating entity. The bad bank will be a financial fund with no operating functions. The good bank gets the short-terms assets and the “other” assets because many of these are related to its operating activities. It gets the better half of the long-term assets, taken to have book value, while the bad bank gets the poor half, where the impairment has already occurred and suspicions of further price declines persist. The bad bank holds the valuable equity in the good bank to the tune of $427 billion.

The deposits remain as liabilities of the good bank. Because the good bank is heavily capitalized, the deposits are safe. Most are uninsured, so the creation of the good bank eliminates the danger of a run on the bank by those depositors. All of the debt goes to the bad bank. The holders of the debt were never promised a government guarantee. The shareholders in Citicorp become the shareholders in the bad bank. They are indirectly shareholders in the good bank as well, because the bad bank owns the good bank.

The bad bank is thinly capitalized. In fact, it has exactly the same amount of capital that Citi had in the first place. With further declines in the values of the troubled assets, the bad bank may become insolvent. In that case, the bondholders will need to negotiate diminished values or the bad bank will need to be reorganized. In either case, the shareholders will lose all their value, just as they would have lost that value had Citi not been divided and there had been no further bailout from the government. The bondholders will lose part of their value, because there is no reason or justification for bailing them out.

This seems suspiciously like magic, so I’d like to know what others with some expertise have to say.

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