Investors fear that Citigroup Inc’s (C.N: Quote, Profile, Research) sale of $4.5 billion of shares, combined with a $6 billion preferred stock sale last week, signal the bank is likely to face more write-downs in the future and may need to raise even more capital.
Citigroup management has shifted from believing it was essentially done raising new capital to signaling it is interested in raising more, analysts say.
That willingness to raise more money is a warning sign to some investors, because companies are typically reluctant to issue equity capital, which can be dilutive and boost dividend obligations.
“It looks like they’re trying to stop the bleeding and they just can’t seem to do it,” said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon.
Mike Hanretta, a spokesman for Citigroup said: “we are strongly capitalized.”
But some analysts disagree fast cash payday loan. Meredith Whitney, analyst at Oppenheimer & Co, said the bank needs another $10 billion to $15 billion of capital. Her note came out before Citi’s stock deal was boosted from $3 billion to $4.5 billion.
Whitney also believes Citi may cut its dividend, which costs the bank about $6.5 billion a year, for the second time this year.
The recent bout of preferred and common equity offerings — one of a series by capital-starved financial institutions worldwide — leave Citi with a Tier 1 capital ratio of about 8.6 percent, based on March 31 balance sheet figures. That beats the 7.7 percent level it had before the capital raising, and is above the bank’s target of 7.5 percent.
Federally owned Atomic Energy of Canada Ltd. is no longer pursuing the sale of its next-generation nuclear reactor in the United Kingdom, announcing yesterday it will focus its energy on capturing business at home.
Some industry critics said AECL, which says it has spent "less than $10 million" trying to snag a purchase from the U.K., is trying to soften the blow of a certain loss and how it might be perceived as it bids for contracts in Canada.
"Why let it blow up later when you can back out now and save some face?" said Shawn-Patrick Stensil, who closely follows the nuclear power sector for Greenpeace Canada.
Less than two weeks ago, Mississauga-based AECL announced that its Advanced Candu Reactor made it onto a short list of four reactor designs approved by the U.K. nuclear regulator, which said it found no safety or security shortfalls serious enough to rule out the Canadian design. The short list also included Areva NP, Westinghouse Electric Co. and GE Nuclear – the same companies currently being considered for a new reactor in Ontario.
At the time, the U.K. government said it would whittle the list to three designs sometime in May. Sources say the regulator sent letters to all the U.K. utilities asking them to rank the designs they preferred. Their responses still left AECL on the bottom of the list.
Hugh MacDiarmid, AECL’s president and chief executive officer, told the Toronto Star that a business decision had to be made.
"We’ve been very carefully evaluating our realistic prospects over there. How much money is it going to cost us to go through step three, how much time, and without any commitment at the end of that?" he said payday loan. "Our sense was that we were unlikely to get the blue ribbon this time around, because we didn’t have the demonstration project under way here in our home country."
MacDiarmid said the U.K. plans to build several new reactors and that AECL intends to participate in subsequent rounds, once it has proven itself in Canada.
With three opportunities to sell in Canada – in Ontario, New Brunswick and Alberta – the Crown corporation didn’t want to spread itself too thin, he added.
"I’m a real believer in having a core mission in life, and I believe AECL’s core mission is to be the supplier of choice to the Canadian electrical utility market. Everything else has to be secondary to that."
Marc Kealey, an international energy consultant and former general manager at AECL, said the company made the right decision. The Canadian government, ultimately responsible as AECL’s owner, is better off backstopping a new nuclear project on its home turf than taking on huge financial risk in a foreign market, he said.
Even with a contract in Canada, Kealey added that AECL and its Candu technology face an uphill battle in overseas markets, dominated by the pressurized-water reactor technology used by Areva and Westinghouse.
Much of AECL’s efforts are focused on Ontario. The province expects to make a decision on reactor technology, and where the new plant will be built, by year end.
WASHINGTON — A vast reshuffling of U.S. financial regulators pitched by Treasury Secretary Henry Paulson on Monday is not so much about today’s economic crisis as tomorrow’s.
"These long-term ideas require thoughtful discussion and will not be resolved this month or even this year," Paulson acknowledged in a speech detailing his Blueprint for Regulatory Reform.
The proposals would broadly expand the powers of the Federal Reserve, merge the regulation of stock and commodities markets, fold savings and loan institutions under the umbrella of bank regulation and even allow insurance companies to opt out of state regulation in favor of a newly created federal insurance regulator.
Paulson’s plan also would create a new super-regulator whose powers would cut across various financial services with overarching responsibility for protecting investors and consumers.
The plan also would create a new federal entity to oversee the mortgage origination process so that lending standards never again would erode to the point where they sink the national housing market. That proposal has bipartisan support and could win early approval.
However, very little in the plan can be set in motion by executive order or under existing regulatory authority, so it will be up to the next president and Congress to determine how to proceed.
Leading Democrats who now control Congress didn’t rush to embrace the Paulson plan.
"I would call this the
wild pitch. It’s not even close
to the strike zone," said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, which would oversee many of the proposals.
Other Democrats said the plan offers no solutions for people facing foreclosure from rising interest rates, job losses from a slowing economy or enough oversight.
"The administration’s hands-off policies on regulation of securities and commodities markets and its continued pressure for less and less regulation have contributed to the mess that the markets are in," U.S. Sen. Carl Levin, D-Mich., said in a statement. "Reasonable regulation, not just coordination, of those markets is overdue."
Paulson said the economy’s current stumbles had nothing to do with lax regulation.
"I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years," he said.
The Paulson plan offers three time frames for regulatory changes: short-term proposals that could be enacted before the next president takes office in January, intermediate-term plans that could take two to eight years for congressional approval and long-range goals that serve mainly as discussion points.
The biggest change would be authorizing the Federal Reserve to become a supercop, with supervisory powers over any aspect of financial markets that presents danger to the financial system.
It isn’t clear how much Fed staff would have to increase for the agency to be effective at its expanded responsibilities.
"If you only address issues at a higher level of engagement, you may not have the institutional strength that comes from getting into the details," said Vince Reinhart, who was a Fed division director from 2001 to 2007 us fast cash. "The Fed is ’special forces’ that get helicoptered in when things get really serious. … The mission is very big because any entity could potentially have ‘consequences for financial stability.’"
The most immediate thing that Paulson thinks can and should be done this year is creating a Mortgage Origination Commission to provide much-needed federal oversight for the home loan origination process.
"Simply put, that process is broken," Paulson said.
This new commission, which appears to have support from top Democrats, would be composed of a representative from each of the five federal agencies that have some jurisdiction over banking — the Federal Reserve, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration — and a representative from the association of state banking supervisors.
The president would appoint a director of the commission, which would design professional standards for licensing mortgage brokers and others who originate home loans. The group would establish educational requirements and either provide a registry for complaints or take disciplinary action against individual mortgage brokers, or both.
"This proposal addresses how the registry requirement would be enforced, and establishes an office to oversee individual and state compliance with its rules. We support this aspect of the recommendations," said George Hanzimanolis, the president of the National Association of Mortgage Brokers.
Another part of the plan is to allow national insurance companies to opt out of state regulation if they’re willing to be regulated by a federal insurance regulator, which doesn’t now exist. The Treasury argues that 50 separate state regulatory schemes put insurers at a disadvantage in a global economy.
But Sen. Dodd of Connecticut, where many top insurers are based, suggested that there may be a more middle-ground approach. He said he thought federal regulation of life insurance could be a good idea.
But, Dodd added, states probably would do a better job regulating the property and casualty insurers, who underwrite policies for protection against losses from hurricanes, earthquakes, tornadoes and other disasters.
Kevin G. Hall of McClatchy Newspapers contributed to this report.
Societe Generale launched a deeply discounted 5.5 billion euros ($8 billion) capital increase on Monday to prop up its finances and heal scars from the world’s biggest rogue trading scandal.
The one-for-four rights issue at 47.50 euros per share gives its existing shareholders a bigger-than-expected discount of 38.9 percent to Friday’s price as a reward for sticking with the bank and filling a 4.9 billion euro hole blamed on one trader.
Investors and analysts, who had predicted a discount of 30 percent, said SocGen appeared anxious to guarantee a maneuver that could be crucial to its hopes of staying independent.
“The price is very low. The feedback from the market cannot have been very encouraging. As they can’t miss this deal they decided to strike very low,” said Landsbanki Kepler banking analyst Pierre Flabbee.
Takeover talk has swirled around SocGen since January 24 when executive chairman Daniel Bouton unveiled the multi-billion-euro trading losses and pinned the blame on unauthorized stock market gambling by one junior trader, 31-year-old Jerome Kerviel.
Kerviel spent the weekend in a Paris prison after prosecutors succeeded in overturning his bail credit report. But a Paris broker who was quizzed by police for 48 hours over his links with Kerviel was released by judges without charge on Saturday.
Top contender to bid for SocGen is domestic rival BNP Paribas. But a source familiar with BNP’s thinking told Reuters on Monday it was not preparing a hostile bid. BNP failed to buy SocGen in a three-way takeover battle in 1999.
“The idea of a bid has not been raised at all at board level,” the source said. “What one could think about is a friendly approach. If at a certain stage Societe Generale management considers it intelligent to bolster the bank with a natural partner there could be something to do.”
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