Is Citigroup Going Down for the Count?

by Florida's #1 Mortgage Planner on November 6, 2007

Citigroup is making headlines (yes, I know Merrill Lynch did too).  Now they are changing leaders, but can Rubin save Citi?

Just yesterday, we were hearing about the $11B write offs Citi was going to make over mortgage backed securities.  Not too long ago, I wrote about Citi’s SIVs and the problems they could create for Citi.

Now a MarketWatch article shows Citigroup has over $134B in Level 3 Assets.  Since Level 3 Assets are the scariest, that could spell major trouble for an already troubled company.

So, what are Level 3 Assets?  Simply put, they are assets that are absent of reliable price as there is non one crazy enough to buy them.  So, expect plenty more "write-offs" from Citi and they can only hope that it won’t destroy them.

Comparing Citi and Merrill, and you will see Citi is in considerably worse shape, even before factoring in SIVs. 

Mish (Michael Shedlock) had an in-depth analysis that sums it up in this…

"Level 3 assets at Citigroup exceed shareholder equity. Now take a look at level 2 assets sitting at $939 billion dollars. A mere 10% haircut in the value of those assets would eat up 74% of working capital. A 10% haircut in Level 2 assets in conjunction with steeper losses in level 3 assets would make Citigroup insolvent."

The answer to the question remains to be seen, but reality may prove that Citi is currently fighting for its life and not likely to survive.

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