Citi India has Rs 8.6K cr in equities to face crisis
Over 50% In HDFC * • Held Through Many Entities * Partha Sinha | TNN Mumbai: Citigroup's equity investments in India are now worth over Rs 8,600 crore at Friday's closing prices. Citi's assets in India include its equity investments in over 130 companies—in sectors as varied as finance, software, pharma, infrastructure and real estate. These investments are significant when viewed in the context of Citigroup CEO Vikram Pandit's recent statements that the bank might look at selling some of its assets to stay afloat, rather than merge with some other bank. Data collated from latest disclosed shareholding patterns of companies to NSE and BSE show that, as on September 30, over half the value of Citi's equity investments in India—worth nearly Rs 4,700 crore—was in one company, housing finance major Housing Development Finance Corp (HDFC), in which it holds a stake of nearly 12%. The number of companies in which Citi's shareholding exceeds 1% of the company's paid-up capital currently works out to 136, worth about $1.7 billion. The other top holdings were in Satyam Computer (worth nearly Rs 200 crore) and Educomp Solutions, K S Oils and IDFC, each worth between Rs 160 crore and Rs 170 crore. In terms of Citi's major stakes in other companies, it has 27% in Spentex Inds, 23% in Polaris and 21% in JBF Inds. Market players said Citi's India portfolio could be worth even more if its holdings in those companies in which it holds less than 1% stake are also taken into consideration. Current rules do not require companies to disclose to the exchanges the names of shareholders holding less than 1% of their capital. The US financial house's investments in India are routed through a number of investment vehicles that include Citi's Mauritiusbased investment arms and companies fully-owned by Citi holding major shares in listed entities. In HDFC, it holds 9.1% through Citigroup Strategic Holdings Mauritius while Citigroup Holdings Mauritius holds the balance 2.6% in the home mortgage major. It also has private equity arms (whose investments are not strictly investments by Citi) holding major stakes in companies. For example, Citigroup Venture Capital Intl-Growth Partnership Mauritius holds its entire interest in Spentex. However, these investments have also been included in the list on the assumption that if these are ever to be liquidated, then at least some percentage of the sales proceed would also accrue to parent Citigroup. Citi's disclosed portfolio in India show that other than in HDFC, it also holds about 2.7% in Bajaj Holdings, the holding company for Rahul Bajaj group's financial services business and other investments. In the same financial services space, it holds stakes in IDFC, Allahabad Bank, Canara Bank, Central Bank, Indian Overseas Bank, JM Financial, Dewan Housing, Federal Bank, IFCI, Indiabulls Securities, India Infoline, Karnataka Bank and a few other entities. * Citigroup pays for a gold rush to risk * In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-paneled library to assess their own wellbeing. There, Citigroup's chief executive, Charles O Prince III, learned for the first time that the bank owned about $43 billion in mortgage-related assets. He asked Thomas G Maheras, who oversaw trading at the bank, whether everything was OK. ThomasMaheras told his boss that no big losses were looming, according to people briefed on the meeting. For months, Maheras' reassurances to others at Citigroup had quieted internal concerns about the bank's vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup's huge mortgage-related holdings. They were too late, however: Within several weeks, Citigroup would announce billions of dollars in losses. Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against the trading or lending excesses. But many Citigroup insiders say the bank's risk managers never investigated deeply. "Because of longstanding ties that clouded their judgment, the very people charged with overseeing deal makers eager to increase short-term earnings and executive's multimillion-dollar bonuses failed to rein them in," these insiders say. Today, Citigroup, once the nation's largest and mightiest financial institution, has been brought to its knees by more than $65 billion in losses, write-downs for the troubled assets and charges to account the for future losses. More than half of that amount stems from mortgage-related securities created by Maheras' team. Citigroup's stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a workforce that numbered about 375,000 a year ago. Critics say blame reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup. The bank's downfall was in the making and involved many in its hierarchy, particularly Prince and Robert E Rubin, an influential director and senior adviser. Citigroup insiders and analysts say Prince and Rubin played pivotal roles in the bank's current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Prince and Rubin both declined to comment for this article. For a time, Citigroup's megabank model paid off handsomely, as it rang up billions in earnings each quarter from credit cards, mortgages, merger advice and trading. But when Citigroup's trading machine began churning out billions of dollars in mortgagerelated securities, it courted disaster. As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses. David C Bushnell was the senior risk officer who was supposed to keep an eye on the bank's bond trading business and its multibilliondollar portfolio of mortgage-backed securities. Those activities were part of what the bank called its fixed-income business, which Thomas Maheras supervised. One of Maheras's trusted deputies, Randolph H Barker, helped oversee the huge build-up in mortgage-related securities at Citigroup. But Bushnell, Maheras and Barker were all old friends, having climbed the banks corporate ladder together. It was common in the bank to see Bushnell waiting patiently sometimes as long as 45 minutes outside Barker's office so he could drive him home to Short Hills, New Jersey, where both of their families lived. Because Bushnell had to monitor traders working for Barker's bond desk, their friendship raised eyebrows inside the company. After all, traders' livelihoods depended on finding new ways to make money, sometimes using methods that might not be in the bank's long-term interests. But insufficient boundaries were established in the bank's fixed-income unit to limit potential conflicts of interest involving Bushnell and Barker, people inside the bank say. According to a former Citigroup executive, Prince started putting pressure on Thomas Maheras and others to increase earnings in the bank's trading operations, particularly in the creation of collateralized debt obligations (CDO)s securities that packaged mortgages and other forms of debt into bundles for resale to investors. Chuck Prince going down to the corporate investment bank in late 2002 was the start of that process, a former Citigroup executive said of the bank's big CDO push. Chuck was totally new to the job. He didnt know a CDO from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. From 2003 to 2005, Citigroup more than tripled its issuing of CDOs, to more than $20 billion from $6.28 billion. Companies issuing the CDOs generated fees of 0.4% to 2.5% of the amount sold meaning Citigroup made up to $500 million in fees from the business in 2005 alone. In December 2005, with Citigroup diving into the CDO business, Prince assured analysts that all was well at his bank. Even as the first shock waves of the subprime mortgage crisis hit Bear Stearns in June 2007, Citigroup's top executives expressed few concerns about their banks exposure to mortgage-linked securities. When examiners from SEC began scrutinizing Citigroup's subprime mortgage holdings, the bank told them that the probability of those mortgages defaulting was so tiny that they excluded them from their risk analysis, according to a person briefed on the discussion. Later that summer, when the credit markets began seizing up and values of various CDOs began to plummet, Maheras, Barker and Bushnell participated in a meeting to review Citigroups exposure. The slice of mortgage-related securities held by Citigroup was viewed by the rating agencies to have an extremely low probability of default (less than .01%), according to Citigroup slides used at the meeting. Around the same time, Maheras continued to assure his colleagues that the bank would never lose a penny, according to an executive who spoke to him. In mid-September 2007, Prince convened the meeting in the small library outside his office. Maheras assured the group, which included Rubin and Bushnell, that Citigroup's CDO position was safe. But as the subprime market plunged further, Citigroup's position became more dire even though the firm held onto the belief that its CDOs were safe. Soon, however, CDO prices began to collapse. Credit-rating agencies downgraded CDOs, threatening Citigroup's stockpile. A week later, Merrill Lynch aggressively marked down similar securities, forcing other banks to face reality. By early November, Citigroup's write-downs ballooned to $8 billion-$11 billion. Barker and Maheras lost their jobs, as Bushnell did later on. And on November 4, Prince told the board that he, too, would resign. Although Prince received no severance, he walked away with Citigroup stock valued then at $68 million along with a cash bonus of about $12.5 million for 2007. Prince was replaced last December by Vikram S Pandit, a former money manager and investment banker whom Rubin had earlier recruited in a senior role. Since becoming chief executive, Pandit has been scrambling to put out fires and repair Citigroups deficient risk-management systems. Pandit faces the twin challenge of rebuilding investor confidence while trying to fix the company's myriad problems. Citigroup still holds $20 billion of mortgage-linked securities on its books, the bulk of which have been marked down to between 21 cents and 41 cents on the dollar. It has billions of dollars of giant buyout and corporate loans. And it also faces a potential flood of losses on auto, mortgage and credit card loans as the global economy plunges into a recession. Also, hundreds of billions of dollars in dubious assets that Citigroup held off its balance sheet is now starting to be moved back onto its books, setting off yet another potential problem. Even though Citigroup executives insist that the bank can ride out its current difficulties, and that the repatriated assets pose no threat, investors have their doubts. Because analysts do not have a complete grip on the quality of those assets, they are warning that the Citigroup may have to set aside billions of dollars to guard against the losses. NYT NEWS SERVICE --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
