Citigroup, Bank of America Bondholders May Be Next to Share Bailout Pain

Quote from MKTrader:

The serial article poster strikes again. It's addictive, eh? I think everyone here can scan Bloomberg for the most bearish-sounding article each day, thank you.
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Don't see what the problem is... This article actually suggests quite an important scenario that warrants a lot of thinking about.
 
Which makes the (roughly) $30 billion market cap for Citigroup (assuming 100% conversion of the preferred) a little high, to say the least.

It also makes the $27 billion market cap for BAC a little high, although my gut feeling is that BAC is in a slightly "less worse" situation than C.
 
Martinghoul,

When you wrote "creeping around in Europe and UK", are you referring to European insitutions other than RBS / Lloyds and Barclays?

Are there other specific financials that you think are in a particular bad situation, compared to a relatively stronger company like HSBC?

Quote from Martinghoul:

He makes a good point. Especially since these sorts of ideas have been creeping arnd in Europe and UK for weeks already.
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Quote from m22au:

Martinghoul,

When you wrote "creeping around in Europe and UK", are you referring to European insitutions other than RBS / Lloyds and Barclays?

Are there other specific financials that you think are in a particular bad situation, compared to a relatively stronger company like HSBC?
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Well, when I say 'creeping around' I mean two things...

On the one hand, weaker banks here have been effectively defaulting on their hybrids and this process is slowly spreading higher and higher in the capital structure. It's like gangrene: from LT2 not getting called to coupon deferrals on T1 to writedowns on UT2 principal. By extension, the mkt is now starting to price this slow deterioration into senior debt. Whether that's justified or not is a very political matter at this point as the blogger points out.

On the other hand, the developments in the political arena have been very significant. Firstly, the fact that the UK govt let B&B defer the coupon on its sub debt without triggering a default. Secondly, there has been speculation that the UK Banking Act actually allows the govt to force a debt/equity swap, so the groundwork is already there.

Needless to say this applies to weaker banks that do require recapitalization (think of the weak German names that have been in the news a lot).
 
Quote from ASusilovic:

Hum...now I understand why investors in the U.K. flocked to sell government bonds to the BOE...must have something to do called "quantitative easing" or so...:)

http://ftalphaville.ft.com/blog/2009/03/12/53497/stampede-to-sell-uk-gilts/
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I am told that most of the accepted offers in this first reverse auction were from fast money. IMHO, once these guys take profit on a nice short-term spike they've done so well on, the other investors won't be as happy to fill the BoE's bids.
 
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