Posted on 02/16/2008 5:21:28 PM PST by Travis McGee
Citigroup Stops Withdrawals from Hedge Fund: WSJ
Citigroup has barred investors in one of its hedge funds from withdrawing their money, and a new leveraged fund lost 52 percent in its first three months, the Wall Street Journal reported Friday.
The largest U.S. bank suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to pull more than 30 percent of its roughly $500 million of assets, the newspaper said. Citigroup injected $100 million to stabilize the fund, which lost 10.9 percent last year, the newspaper said.
The fund's manager, John Pickett, left following a dispute with Citigroup executives and complaints from investors after he tried to back out from committing more than half the fund's assets to buy leveraged loans tied to a German media company, the newspaper said. That matter was settled when CSO agreed to buy $746 million of the loans at face value, though they were trading at 86 percent to 93 percent of face value, it said.
Meanwhile, Falcon Plus Strategies, launched Sept. 30, lost 52 percent in the fourth quarter, after betting on mortgage-backed and preferred securities and making trades based on the relative values of municipal bonds and U.S. Treasuries. Some collateralized debt obligations in the fund trade at 25 percent of their original worth, the newspaper said.
Both funds are run in Citigroup's alternative investments unit. That unit was briefly headed last year by Vikram Pandit, who in December replaced Charles Prince as Citigroup's chief executive. Old Lane Partners, a hedge fund that Pandit founded and sold to Citigroup last year, has also had weak performance, falling 1.8 percent in January, the newspaper said.
Since June, Citigroup has disclosed some $30 billion of write-downs and losses tied to subprime mortgages, complex debt and deteriorating credit. The problems contributed to a record 9.83 billion fourth-quarter loss. Profit that quarter in the alternative investments unit fell 89 percent to $61 million.
Citigroup was not immediately available for comment. A spokesman told the newspaper that CSO and similar hedge funds are subject to comprehensive risk oversight, and that Falcon Plus's returns suffered from volatile fixed-income markets.
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."~~Alan Greenspan, February 22, 2004
“The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions.”~~Alan Greenspan, May 2005
"We're not about to go into a situation where (real estate) prices will go down. There is no evidence home prices are going to collapse."~~Alan Greenspan, May 21, 2006
“The damage from the subprime market has been largely contained. Fortunately, the financial system and the economy are strong enough to weather this storm.”Richard Fisher, Federal Reserve Bank of Dallas President, Apr 4, 2007
"All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."~~Fed Chairman Ben Bernanke, May 17, 2007
Uh-oh
Don’t make more of this than it really is. There are thousands of hedge funds. Some go bust every month. In any case the people who invest in them must have sufficient assets to be better able to absorb any loss than the average person on a salary.
“Some go bust every month.”
Uh - but this is Citi.
I’m not really that much of a violent guy, but if a bank denies me MY money for any reason that’s leap over the counter territory.
This article was on the WSJ front page or front page of the Money and Markets section......
On the same day there was an article how Nebraska farmers are getting rich off the food commodities boom. Blowing their new found big $$$$ on expensive Mercedes etc etc-——>>>> http://online.wsj.com/article/SB120303832040070169.html?mod=todays_us_page_one
CASH CROP
Heartland Sees Boom
With Grains in Demand
By JULIE JARGON
February 15, 2008; Page A1
ALBION, Neb. — The U.S. economy may be teetering on the brink of recession. But there’s a bountiful harvest down on the farm.
Grain prices are surging to historic levels. Spring wheat, a variety often used in bread, hit a record $18.53 per bushel yesterday. Corn is trading above $5 and soybeans are bringing in more than $13, all 25% or more above their year-ago prices.
Net farm income is expected to hit $92.3 billion in 2008 — a 51% increase over the 10-year average of $61.1 billion. Across much of the Great Plains, unemployment rates are well below national figures and housing markets remain robust. Robert Moskow, a food industry analyst at Credit Suisse, has proclaimed this the “golden age” of agriculture.
The new era owes largely to a surge in crop demand from biofuels producers and the growing demand for grains in places like China and India. With inventories strained, “We’re not going to go back to $2.10 per bushel corn,” says Mike Helmar, director of industry services at Moody’s Economy.com.
While the boom is reversing decades of decline in U.S. rural areas at an otherwise vulnerable time, it’s also pushing global food costs higher. International wheat prices in January were up by 83% from a year ago, according to a new report from the Food and Agriculture Organization of the United Nations. Scarce and costly grains — especially staples like rice, wheat and corn — have caused riots in poor nations such as Senegal and Mexico, says the group.
Here in Albion, a central Nebraska farm town of fewer than 2,000, such problems seem worlds away.
People are building new, outsized homes or renovating existing ones. A new ethanol plant has created 55 jobs and a full-time dentist is on the way. A fine-jewelry store moved here in November and a coffee shop run by farmers’ wives — charging Starbucks prices in a town where coffee used to come in a Styrofoam cup — just celebrated its first anniversary.
“There’s a buzz in Albion,” says Brad Beckwith, a 55-year-old corn and soybean farmer. Although he now faces higher rents for land and higher prices for seed, fertilizer and fuel, he’s still turning a profit.
“Farmers have a lot of money to spend,” says Jerry Carder, a 49-year-old Albion corn and soybean farmer who recently bought a $40,000 2008 Mercedes-Benz ML350. Business for Mr. Carder has been steady in the past but has spiked in the past two years as grain prices have risen.
Still, rural America remains such a small slice of the U.S. population — and agricultural production just a sliver of the country’s output — that the strong farm economy can’t do much to offset weakness in the broader economy.
“The agricultural economy will help keep afloat some of the rural areas and it will spill over, to some extent, to the...manufacturing and service industries,” says David Oppedahl, a business economist at the Federal Reserve Bank of Chicago. “But it probably will not be large enough to cushion a recession in a broader setting.”
Money in Their Pockets
Many farmers are finding more money in their pockets at the same time that federal subsidies — historically a main source of their income — have remained largely in place. A new farm bill under consideration in Congress doesn’t call for any major overhauls, although it could place caps on subsidies that the nation’s wealthiest farmers receive
(SNIPPED)
Looks like the fund is working. The investors are now in debt.
Sometimes, I have to wonder whether these folks really believe what they say, or are just saying it for the public consumption.:-)
Kumbaya, M’Lord, Kumbaya...
If the Dow fell 2000 points in one day, somehow, wombody somewhere would try to make it sound like it was a normal occurrence...
Move along folks, nothin to see here...
I heard an interesting report today about somebody who had a chunk of change tied up in muni bonds.
There was some sort of deal going on and the person HAD to get the money out of the bonds before maturity. Had something like 200K into them.
There is a penalty for early withdrawal - the guy ended up getting fifty cents on the dollar!
Thanks for reading it!
Seems kind of sad, like Saudi Arabia but on a smaller scale. By which I mean, instead of investing the windfall in case of lean time ahead, they are enjoying a large increase in short term lifestyle.
I still wonder how the middle east will look after all the oil is gone and all the money is spent. Back to poverty, I guess... We’ll see who is investing and developing and who is just pissing away the riches. In regards the midwest towns from the article, it doesn’t sound like much of the windfall is going to investment and development.
Human nature never changes. How could it?
A few muni bond auctions have been called off recently. There was zero interest in purchasing them
The bond insurers are imploding. Making investors skittish. Interest rates of 15% have been on some bonds. Counties paying higher interest rates means more taxes for you and me
What no one is saying is the fact that on Friday 100% of the Auction market securities market both muni. and closed End, failed, this was 7 & 28 day paper. There was almost like a run on the bank. The major firms on the street are working over the three day weekend to try and get it back up and running. Hopefully it will not spill over to the VDRO market or the overnight paper!
It's in the bible
Worshipping the Golden Calf. In our case the Golden Calf of foolish consumerism and materialism
Historically in Europe when crops were abundant for years in a row the peasants threw more drunken lavish weddings for their children. More lavish feasts and celebrations of all kinds. It's "Le bon temps roule" --- Let the good times roll. Everyone gets to celebrate themselves, how wonderful they are <sarcasm/>
What is that an indication of? Do investors somehow believe that munis will all the sudden stop collecting property taxes?
Seems to me short term would be a far less risky investment. But I don’t know sh*t or shinola about investing...
I can not post to much info, but IMO this is not a credit crunch, but what we are now facing is a liquidity crisis at this point, with all the write downs on the street, plus other internal issues at all the major banks and wirehouse there just seems to be a big liquidity problem right now. You must understand a major part of US $$$ liquidity is overseas due the real bad current account deficit (trade imbalance) that has been going ion for some time. The Fed is lowered rates, but they need to add cash to the system. Look up were the money supply is M2, remember when Financials have write downs what is taking place is with drawing 4-5 times that amount of the money supply. When you stary seeing AAA rate high quality 7 day paper fail a AMS Auction, there is a problem. There have only been 3-4 failed auctions over the last 25 years all due to Credit issues, but this week they were all failing, there is a liquidity issue at hand right now, The street must fix the hole in the wall to keep it from spilling over to other parts of the economy.
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