Wednesday, September 5, 2007
Its only a matter of time: Money center banks slowly reveal off-balance sheet liabilities
The WSJ reports that Citi has $77 billion in off-balance-sheet conduit "assets" (which, if not sufficient to cover conduit liabilities - i.e., commercial paper - Citi has obligation to fund) and in addition has $100 billion in affiliated SIV assets. JPM is reported to have $54 billion in conduits while SIV assets not disclosed yet (that I am aware of). Well well, these are no longer small numbers - either in absolute terms or relative to the assets on their balance sheet. Citi has about 1.8 trillion in assets so total conduits plus SIVs is almost 10%. Are you thinking what I'm thinking? Here we go again, a major financial crisis and the banks are right smack in the middle of it. Conduits, "hung" IPO loans, in-house hedge funds that have imploded, sub-prime mortgage issuance and CDO packaging businesses; not to mention the big chunk of their earnings that comes from servicing hedge funds and PE funds. Its only a matter of time before we see the cumulative effect of these hits cause investors to question the solvency of some of the big banks. At a minimum, earnings are going to get shredded.