Following up on Tyler's earlier post, it's important to put the potential PPIP assets in perspective to the overall holdings of the banks.
Citi is clearly the most interested party in this whole thing, with a whopping 44% of its total assets tied up in legacy assets. As Citi is valuing these things at such a ridiculously high level, Citi stockholders are going to be closely watching the PPIP proceedings and how the players approach their bidding strategy. The benefit of the PPIP-leverage is it is likely to boost valuations higher than they would be without the PPIP leverage/backstops - it remains to be seen if that benefit will be substantial enough to stem the bloodloss at Citi.
Another interesting tidbit is that the weighted average ex-Citi is still at a pretty high 9%. If the valuations for these legacy assets drop from the 90-100 range to roughly half that (which doesn't seem wholly unreasonable) that's an instant 5% drop in assets across the entire financial industry.
The takeaway from this whole thing is that the PPIP program is wrought with conflicting interests, and every movement in valuations for deals is going to have a huge impact beyond the specific parties of that particular deal. Stay tuned...
Update: Institutional Risk points out the gap between Geithner/Bernanke's pricing of these legacy assets at around 80 cents/dollar and the market's pricing at between 20-40 cents/dollar. Further, it highlights the possibility of these following to 15 cents/dollar by Q3 - implying a 37.4% net asset markdown for Citi and a 7.65% net asset markdown across the entire financial industry.
Sphere: Related Content
Print this post