There ought to be a rule.
Before any banks get any more taxpayer money, each member of their top brass needs to be drug- tested.
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Yesterday, the stock market went crazy, nearly rallying 300 points on the Dow because of an internal memo issued by Citigroup CEO Vikram Pandit. In the missive to his troops, Pandit proudly announced that in the first two months of 2009, the troubled financial giant was having its best quarter since the third quarter of 2007.
After touting his company’s improved performance, Pandit expressed disappointment in the bad rap his company has gotten in the financial marketplace when he wrote:
“Despite the steps we've taken to strengthen our capital base [read taxpayer bailout], I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position.”
One Miniature Detail Is Bypassed
Dude, are you kidding?
Pandit’s memo glosses over the fact that without an infusion of nearly $45 billion from the American taxpayer, Citi already would have been shut and scattered to the wind by federal regulators.
It would be unfair to say that Pandit completely ignored the role you and I played in saving his bacon.
Instead of sending a thank-you note to the U.S. Treasury, however, he euphemistically referred to the additional billions of federal money his bank got just two weeks ago as “the preferred exchange.” According to Pandit’s memo, as a result of this “preferred exchange,” he expects Citi to be the “strongest capitalized large bank, as measured by tangible common equity.”
Although Pandit’s “internal memo” was as widely circulated as a bong at an ACDC concert, he shouldn’t get all the credit for yesterday’s rally. The market also rose on news that Treasury Secretary Timothy Geithner said the government will use capital injections to spur lenders to sell distressed securities. In other words, it’s likely that the federal government may start printing more money to give the banks even more dollars that they probably won’t lend.
Hand Me a Cigar, Please
Stocks also rose after the U.S. Congress gave final approval to a $410 billion bill that will boost domestic spending, loosen the trade embargo on Cuba and fund thousands of congressional pet projects known as earmarks. After all this time, it finally may be legal to light up a Havana.
Part of the problem is that investors are willing to cling to any shred of positive news. The fact that Pandit is delusional in his assessment of his bank’s financial standing is apparently irrelevant. Right now, investors will take any inkling of good news, no matter the source.
Memo to Tim Geithner: Unless these guys are willing to give you a urine sample, no more bailout.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
