Are Citigroup Inc. (NYSE:C) and Bank of America Corp. (NYSE:BAC) signing deals with the devil? Both are apparently in secret discussions with the Federal Department Insurance Corp. and haven't disclosed the discussions to shareholders.
The talks are to strike a deal with the FDIC concerning operations and keep the banks off the FDIC's problem bank list. With earnings announcements coming up, both Bank of America and Citigroup are under pressure to assuage shareholders' concern and make the books appear as appealing as they can, which is why the FDIC has a memorandum of understanding with the banks to work out problems without disclosing information to the banks' shareholders. If the inefficiencies are not worked out, then the FDIC can order a cease-and-desist order.
According to
The Wall Street Journal, Bank of America has been required to "overhaul its board and address perceived problems with risk and liquidity management." The bank has made
several changes to its board in the past month and is supposedly searching for a successor to CEO Ken Lewis. The bank is also supposed to report a profit this quarter, but it has a lot of troubled loans and is still integrating Merrill Lynch & Co.
Citigroup is close to a similar agreement, but part of its agreement includes Citi giving another 34% stake to the U.S. government, according to the Financial Times. "The proposed agreement requires, among other things, that Citi strengthens its board and governance, improves asset quality, better manages expenses and provides more information to regulators on its capital and liquidity."
In the past few weeks, Citigroup has overhauled its management,
which included moving Ned Kelly, who was briefly in the role of CFO, over to another position in the firm due to his bad relationship with the FDIC. However, Citigroup is expected to report
a second quarter loss.
The actions with the FDIC show concern for the institutions' health. For shareholders, the repercussion of the government's investments in the institution are clear -- the bank does not have to disclose its dealings with the FDIC.
There is something of a Catch-22 here. The reports that the FDIC is usurping executives' fiduciary duties could upset shareholders and send them on their merry way, even before earnings announcements. The FDIC's involvement also demonstrates that really the government is managing the strategies of the institutions, which might not please shareholders either. But shareholders at both institutions at least know that the institutions won't fail (too-big-to-fail) as long as the FDIC is involved and the government is essentially running the banks. No worries though, they won't be
fully nationalized, so opportunistic shareholders that like being in the dark can stay there.
- Maria Woehr
BofA second-quarter earnings preview
Citigroup second-quarter earnings preview
Why did Citi shuffle management?Bank of America's Massey on a mission
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Sounds like dealscape who ever they are and from under what ever rock they climbed from under is kicking up a short position in the financials. Maybe its because they want to hire a real columnist who could write an article so that their true intentions are masked and not screaming at you like that of their short positions and the hope that articles like these will scare people away. Get a life and some credibility while your at it and someone might take you seriously someday.