Well, you think we've already factored in Dow move and frankly you'll think we should open down before any buying emerge but this report over the weekend could make some investors nervous with subprime again. Good luck.
Bruised Citi faces debt threat Marc Moncrief December 3, 2007
CITIGROUP faces a crisis of investor confidence as one of the world's top ratings agencies warns that up to $US65 billion ($A73 billion) in debt issued by the world's biggest bank is at threat from the US subprime crisis.
Moody's Investors Service said at the weekend that it had either cut or was reviewing its evaluation on debt issued by structured investment vehicles (SIVs) controlled by Citigroup.
Banks use SIVs to borrow money in the short term and then use that money to lend long term at better yields.
Moody's said in a statement that it had observed "material declines in market value" across SIV holdings during a broad review of dozens of SIVs run by a number of banks.
Since November 7, Moody's has reviewed 20 SIVs worth about $US130 billion associated with various lenders. It has cut its rating on $US14 billion worth of debt, placed $US105 billion of debt on review for a downgrade, and confirmed the ratings on $US11 billion.
Since subprime loans to borrowers in the US have begun to fail, investors have become less interested in buying short-term debt, forcing banks to bail out their SIVs when debts came due.
The problematic loans were made to borrowers with poor credit on "teaser" rates that reset to higher rates after a honeymoon period.
More than 2 million homes are at risk of repossession as mortgages reset to higher rates this year and next. Borrowers are struggling with sharply higher repayments and, with house prices falling, the option of refinancing has evaporated.
Citigroup provided $US7.6 billion of emergency financing to the seven SIVs it runs earlier this month after they were unable to repay maturing debt. Moody's said six of Citibank's SIVs had either been downgraded or were under review.
Citigroup's subprime losses have been estimated at $US17 billion. It has already lost its chief executive, Charles Prince, to the crisis. The New York Times has reported that Vikram Pandit, a former Morgan Stanley investment banker who joined Citigroup seven months ago, is firming as a likely replacement.
CNBC has reported Citigroup may cut up to 45,000 jobs from its global workforce in the wake of subprime damage, but the bank has denied it plans such substantial cuts.
Last week, the government-run sovereign investment fund of Abu Dhabi in the United Arab Emirates bought $US7.5 billion in "equity units" convertible to Citigroup shares.
Moody's is one of the world's three large ratings agencies. Its evaluation can influence the perception of stability in a security and determine whether investors will accept it as collateral.
Moody's announcement came as London's The Guardian newspaper reported the White House was approaching a deal with mortgage lenders "to ease repayments for thousands of cash-strapped home owners in an attempt to limit the economic and political damage wreaked by millions of home foreclosures".
The report said Countrywide Financial, Citigroup, Wells Fargo and Washington Mutual were among lenders being asked to freeze repayments on loans that are due to be reset this year as short-term "teaser" rates expire. The initiative, which will probably be announced next week, emerged amid mounting expectations of an interest rate cut by the US Federal Reserve. With AGENCIES
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