So C just borrowed $7.5 billion at the 11% rate, and those are convertible bonds, meaning the lender may get even more (as I recall when Countrywide placed a convertible bond few months ago they got a 2% interest on that).
What is the main C business? I guess lending money. The best business customers are getting prime rate, which is 7.5%. Mortgage interests are between 6.5% and 9%, unless you offer a mortgage to a homeless unemployed, which probably will pay much more than that.
So now C is officially losing few % on every $ they lend.
As people say they are the largest subprime borrower on the planet now. Next step will be selling assets and cutting dividends
Update: Mish made much more accurate analysis
November 27, 2007 at 2:15 pm
Next step will be selling assets and cutting dividends.
Or massive layoffs.
However this news — that C is desperate for capital, even on bad terms — is what is presumably the prime driver behind the market’s rise today.
November 27, 2007 at 5:20 pm
theroxylandr wrote:
“So now C is officially losing few % on every $ they lend.
I doubt any of this money is used for new loans. I suspect that the 7.5 Billion will be use to finance existing long term loans financed using short term bonds. The Bonds are comming due and they need money to payback the bond holders to avoid selling debt to the vulture.
Considering Citi has more than $130 Billion in Level 3, I think they’ll need make many more $7.5 Billion infusions on a regular basis. FWIW: This reminds me of homeowners that start using Credit cards to pay their mortgage because they have an emotional attachment. Does Citi have an emotional attachment to the bad loans it carries?
Besides Citi, there is also Morgan Stanley, Merril,HSBC, Freddie and Fanny, Washington Mutual, and a list of more than a dozen other large lenders that probably all need cash infusions soon.