Bank meltdown a matter of trust Andrew Willis, today at 7:52 AM EST

Post a comment Skip to the latest comment Back to the blog Here’s a simple explanation for what’s ailing banks in general and Citigroup in particular: There’s a lack of trust.

Citi can drop 20-something per cent for two straight days because investors who aren’t Saudi billionaires have lost confidence in its management. They don’t have faith in executives who blame others for what are clearly self-inflicted problems. As TD Waterhouse pointing out Friday, " Management is blaming short-sellers, but they also appear to be at fault with some questionable balance-sheet maneuvers that included the unwinding of its SIVs and the reclassification of about $80-billion in assets so that they would not have to be marked to market prices."

As we saw with Lehman Brothers, this can end badly, and quickly. The Wall Street Journal is reporting Friday that Citi’s board of directors is beginning to consider radical strategic moves - a bust up or sale of the bank.

Citi’s market capitalization is now much smaller than that Royal Bank of Canada’s, and on par with the mid-tier Canadian players. And Cit, remember, is expected to write a $13-billion cheque for its share of the BCE buyout loans by Dec. 11.

The credibility issue looms large at Citi, but hangs over other banks too. When Toronto-Dominion Bank highlights its ability to avoid the credit mess, then takes a $350-million writedown on its $10-billion proprietary credit portfolio, the stage is set for Thursday’s one-day, 13-per-cent drop in the stock.

Once lost, trust is devilishly difficult to rebuild. It will be some time before the banks enjoy premium valuations.

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BERNARD EASTMAN from TORONTO, Canada writes: Come on...? When did anyone ever trust the banks?

They have shown over and over again that it is strictly business, their business and their best interests. And they really never tell you what they doing or how they are screwing up. Remember the lack of due diligence with the Enron and the other tech fraud artists? What’s new?

If you hold bank stock you must accept that and deal with them accordingly. Posted 21/11/08 at 10:58 AM EST | Alert an Editor | Link to Comment

You (Namron Soar, from Canada) wrote: Bernard is correct

The banks and financial institutions are always the largest, most impressive buildings in any city and what do they do in there? They simply conive to steal all the money they can from the workers who actually do something for a living. Lately I have heard of so many scams from the Royal Bank where I deal, and credit card holders that have no balance but one magically appears and the threats begin to try to collect. You can make all the arrangements you want to avoid these situations but the banks just keep thinking up new ways to cheat you.

I asked the Royal three times on three different occasions if I was protected against small overdrafts and they couldn’t even give me an answer. They returned a phone payment for $55 and charged me $40 dollars and when I nutted out on them they recinded but I still had to pay the phone co another $40.

Big green glass skyscrapers contain bandits and pirates only.

Rufe

Posted 21/11/08 at 10:08 PM EST | Alert an Editor | Link to Comment