[11/6 UPDATE: Bill Gross can't help but make a dance reference as well!] I guess Chuck Prince's dance moves weren't very effective at dodging the subprime mess--he didn't have the suave moves of the Scissor Sister's Jake Shears, for sure. It's blood on the dance floor, and, in Citi's case, the trading floor as well:
Chuck Prince on Monday dismissed fears that the music was about to stop for the cheap credit-fuelled buy-out boom, saying Citigroup was “still dancing”.
The Citigroup chief executive told the Financial Times that the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market.
He denied that Citigroup, one of the biggest providers of finance to private equity deals, was pulling back.
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” he said in an interview with the FT in Japan.
His comments come amid growing fears that problems in the US subprime mortgage market, rising interest rates and concerns about loose lending standards could lead to a downturn in the leveraged finance market.
“The depth of the pools of liquidity is so much larger than it used to be that a disruptive event now needs to be much more disruptive than it used to be,” he said.
“At some point, the disruptive event will be so significant that instead of liquidity filling in, the liquidity will go the other way. I don’t think we’re at that point.”
Chuck Prince quit as chairman and chief executive of Citigroup on Sunday night as the company revealed it was facing between $8bn and $11bn of further losses on its holdings of mortgage-related securities.
Mr Prince said that in the light of the losses stepping down was “the only honourable course” [such chivalry from the dancing man].
Mr Prince is the biggest casualty yet of the US subprime mortgage crisis which has already led to the removal of the heads of Merrill Lynch and UBS. The writedowns will put further pressure on Citi’s weakened balance sheet which last week prompted some analysts to question whether the dividend was safe...
The value of mortgage securities packaged into collateralised debt obligations has fallen further in recent weeks sharply increasing the losses Wall Street banks face. Stan O’Neal was last week ousted as chairman and chief executive of Merrill Lynch, after it estimated it faced writedowns of $7.9bn, almost double the figure it announced less than three weeks earlier.
After Merrill Lynch, Citi was the largest underwriter of CDOs last year and the credit squeeze has left both with large holdings of securities and CDOs. Citi said it had $55bn of subprime-related direct exposures in its securities and banking business of which $11.7bn was in its lending and structuring business and $43bn consisted of super senior tranches of CDOs.
The writedowns, which will change according to future market conditions, will further weaken Citi’s capital ratios, which dipped below its target levels at the end of the third quarter. The company said it expected them to return to normal by the end of June, having previously predicted that would occur early next year.