By Pam Martens and Russ Martens: July 24, 2020 ~
Michael Corbat, CEO of Citigroup Since 2012
On June 24 Bloomberg News reporters Lisa Lee and Shahien Nasiripour dumped a bucket of cold water on Fed Chairman Jerome Powell’s official narrative that the mega Wall Street banks are “well capitalized” and a “source of strength” in the pandemic.
The Federal Reserve, and particularly the New York Fed which wore blinders leading up to Citigroup’s blow up in 2008, are walking a delicate tight rope in reassuring the public that all is well under their watch versus what any first year accounting major can see is happening on the mega banks’ balance sheets.
The Bloomberg News article revealed the following about the dividends and stock buybacks at Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo:
“From the start of 2017 through March, the four banks cumulatively returned about $1.26 to shareholders for every $1 they reported in net income, according to data compiled by Bloomberg. Citigroup returned almost twice as much money to its stockholders as it earned, according to the data, which includes dividends on preferred shares. The banks declined to comment.”
Sitting on their hands while Citigroup turned itself into a basket case is exactly what the New York Fed’s bank examiners did in the leadup to the last financial crisis of 2008. The answer from the Fed was to secretly funnel $2.5 trillion cumulatively in super cheap loans to Citigroup from December 2007 through the middle of July 2010 to resurrect its sinking carcass, which landed its stock in the dollar store at 99 cents by 2009. On top of the secret Fed bailout to Citigroup, the bank also received $45 billion in equity infusions from the U.S. Treasury; a government guarantee of over $300 billion on its dubious “assets”; a guarantee of $5.75 billion on its senior unsecured debt and $26 billion on its commercial paper and interbank deposits by the FDIC. Tally it all up and it was the largest bank bailout in global banking history.
Adding insult to injury, Congress has allowed the New York Fed to continue to supervise Citigroup despite its abject failures leading to the last crisis. (See As Citigroup Spun Toward Insolvency in ’07- ’08, Its Regulator Was Dining and Schmoozing With Citi Execs.)
If Citigroup has been paying out more in dividends and stock buybacks than it earned, clearly it has had to take on equivalent amounts of debt to do that. But when was the last time you read a headline about that in mainstream media – which receives all that Citigroup advertising dough?
We pulled up Citigroup’s 10-K (Annual Report) at the Securities and Exchange Commission yesterday. It shows that Citigroup’s long-term debt has expanded from $201.28 billion as of December 31, 2015 to $248.76 billion as of December 31, 2019. That’s an increase of 24 percent in four years.
Citi’s 10-K for 2017 shows this: for the full year of 2017, Citigroup reported a net loss of $6.2 billion. But that didn’t stop it from returning “$17 billion of capital to shareholders in 2017 through common share repurchases and dividends.”
Citigroup’s most recent 10-K shows that in 2019 it paid out 121.8 percent of its net income in dividends and stock buybacks.
But here’s the really scary part. The United States is in the greatest economic downturn since the Great Depression with loan losses mushrooming at the largest banks. This is a time to have lots of liquidity at the banks and smooth sailing ahead. But when we looked at what Citigroup has maturing in long-term debt for this year and the next two years, it was not a comforting sight.
This year, Citigroup has $37.3 billion of long-term debt maturing. In 2021 it has $38.1 billion in long-term debt maturing. And in 2022, it has another $27.1 billion maturing. That’s a total of $102.5 billion that Citigroup will have to cough up to deal with maturing debt that it might otherwise have coughed up to loan to struggling small businesses and consumers in a ravaged economy.
The Fed recently ordered the largest banks to suspend their stock buybacks through the third quarter and to cap their dividends at the current rate. That’s really too-little, too-late in the case of Citigroup.
Congress has been completely derelict in allowing the same institution, the Federal Reserve, to supervise Wall Street’s bank holding companies while also giving the Fed the power to create unlimited amounts of money at the push of an electronic button to bail the banks out when the New York Fed’s crony supervision flops.
It’s time for every engaged American to write to their Senators and members of the House and demand real Wall Street reform instead of the crony-capitalist form the public received from Congress in 2010. Until Congress understands that the public is paying attention, it will be business as usual when it comes to Wall Street banks.
