QUEL SURPRISE!

That's French folks. Know what it means? Stunner of all stunners, it appears--at least according to the Wall Street Journal--that Bank of America and Citigroup might need more capital. Then again, if one speaks with the people who are running the institutions, maybe they don't. And whilst we try to unwind this little conundrum, didn't the Administration, taking a page from "A Walk in the Sun," which is of course familiar to our loyal readers, announce some time ago that, "Nobody dies?" Well, if you have in effect guaranteed the largest banks around, why the hell to they have to go through this exercise of raising more capital in what might be categorized as perhaps not the best of times for such an exercise? Seems like a waste of time to me; hell, just let them earn their way out of it (if they can) just like banks have always done.

Then of course is the irksome question of what kind of capital are we talking about. In theory, capital in regard to a bank as with most other organization is there to protect the institution from losses and by the standards of the Basel Accord all the banks who were subjected to the stress test have adequate capital. Ah ha, say some, there is capital and then there is CAPITAL. It would appear for example the the $45 billion Uncle has in Citigroup aint the kind of Capital one wants because it is in the form of preferred shares not common shares or to make it real simple, the kind of capital against which losses can be directly charged. If your reaction to the thought that $45 billion is no good is, "Huh" you and I are on the same page. Now this piece of regulatory genius comes from the same folks that were all for mark to market treatment for everything, but if you eliminate the mark to market "risk" and get back to cash accrual, doesn't a good deal of the concern for what kind of capital one has go away (as if it should have been there in the first place)? This of course begs the question as to whether "Capital" is relevant in a banking context, but you've heard enough from me on that subject. Nevertheless Mr. Pandit, Citi's CEO has announced his intention of converting the government's preferred shares into common equity thereby making Our Hero The Head Hummer at the joint that never sleeps. The fact that it completely and totally screws the equity holders and everybody else who stuck with this thing until the next generation at least is apparently of no interest to anyone. It can well be said that Citi was nationalized months ago but the finality of this action is still a bit off-putting. Worse yet, is the thought of the government getting control of a pot of money this big. Yikes! In one swell foop, The Leader has found himself the biggest pot of gold around which he can redistribute in the name of the exercise of a management function. Of course Mr. Pandit will pander to the thought in order to keep his job, and one wonders why as he has more money that he could possibly ever spend in a life-time unless he marries my wife. Then too, the Chairman, Mr. Parsons, has caused to be appointed four new directors to the Board who know something about banks and banking...in fact they know A LOT about banks and banking. Michael O'Neill is one of the best I have ever known. There may be hope.

And as for our North carolina good ol' boys...Damn, our boy Ken just found out those damn Yankees at PIMCO ar 'bout to vote 22,000,000 shares 'gainst hisself and all o' the 18 of his boys on the board. Actually, you have to feel sorry for poor ol' Ken. Seems as though he got handled by Paulson and Bernanke and Our Hero---yes, dear reader he was there as well--and as a result all sorts of folks are calling for him to be thrown in the hoosegow for misleading his shareholders. I haven't a clue as to the true story but I can sympathize with him as many years ago I was asked by a group of regulators to extend credit to a certain Latin American Country with all of my management missing in action. It is a very lonely feeling. Anyway, there has been speculation that B of A would find it easier to raise capital than Citi. With a new Chairman and CEO and an entire new board if PIMCO finds the support it needs? I don't think so unless markets have changed more than I realize since I put down my green eye shade. So one might ask, "What is to be accomplished by all this at this time?" Beats the hell out of me again. I'm not much help am I? Maybe we will have some answers tomorrow. If you have any ideas, clue me in.