[BabyPeanut]

http://www.nytimes.com/2005/01/20/busin ... group.html
(Free Registerstration or h4x0r1ng required)

Citigroup, the world's largest banking company, reported a 12 percent increase in its fourth-quarter earnings today, but it tempered Wall Street's expectations for the coming year.

The company said that it expected to post solid results in 2005 but that its annual profits would register at the lower end of analysts' expectations because of rising interest rates and a decreased ability to tap into excess loan loss reserves.

WTF is tapping into a loan loss reserve?

[BabyPeanut]

http://amosweb.com/cgi-bin/gls.pl?fcd=d ... s+reserves

loan loss reserves: A special account set aside by banks acting as a buffer between deposits and net worth that's used in case a loan is not repaid. Without this reserve, an unpaid loan on the asset side of a bank's balance sheet would require an adjustment of deposits or net worth on the liability side. The loan loss reserve is used for this adjustment.

Does this mean bad loans are happening so fast they used up their "cushion"?

[BabyPeanut]

Searching on "defaulting loan | loans" turns up:

http://www.bloomberg.com/apps/news?pid= ... fer=europe

Dec. 29 (Bloomberg) -- Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among banks financing buyouts that have left some European companies with debt levels that haven't been seen since the days of Michael Milken, the U.S. pioneer of high-yield, high- risk finance.

A record $40 billion of loans for leveraged buyouts have been arranged in Europe this year through Dec. 17, compared with $29 billion for all of 2003, according to data compiled by Bloomberg.

Out of 130 buyouts in Europe this year to November, 16 left the acquired companies with debt of at least six times earnings before interest, tax, depreciation, and amortization, or Ebitda, according to Standard & Poor's Leveraged Commentary & Data. In 2003, six of 91 European LBOs reached or exceeded that debt level. The average debt burden for buyout deals in Europe this year was 4.6 times Ebitda, S&P says.

``It's clear that there is a bit of a credit bubble building in Europe and the U.S.,'' says Chip Kaye, co-president of Warburg Pincus LLC, the world's second-biggest buyout and venture capital firm. ``That's an issue.''

[BabyPeanut]

http://quote.bloomberg.com/apps/news?pi ... refer=home

Net income rose partly because the bank released some money it had previously set aside to cover loan losses, something Krawcheck said today it won't be able to do as much in 2005.

The company released $605 million in the quarter from reserves for bad loans to consumers and companies. Most of the benefit came from a release of provisions for credit-card debt.

``The seven cents a share they got from the loan-loss reserve because of improving credit quality is not sustainable,'' said James Mitchell, an analyst at Buckingham Research Group

From what I can see the story is that Citibank's profits rose since they had set aside more money for loan loss than they actually needed. They were able to use the loan loss money elsewhere but this is only a temporary thing.

Does this mean they expect an increase in defaulted credit card debit?

[MarkR]

I think it means that credit has in recent years/months become much safer - because of reduced interest rates.

This has allowed the banks to trim their safety accounts (i.e. the loan loss reserve).

This increased profit is a one-off as interest rates are likely to stabilise or rise again, and therefore there is unlikely to be any further gain in safety.

In a few years, if interest rates rise, then I would expect their profits to take a hit as they expand the loan reserve again.

[BabyPeanut]

In a few years, if interest rates rise, then I would expect their profits to take a hit as they expand the loan reserve again.

if?

I really believe that these Asian countries are starting to realize that America has a major fiscal and monetary problem and that it is in there own self interest to diversify there holdings of American debt. The big problem is that these countries have been the only major buyer of dollars so if they start to sell who the heck is going to buy all that debt from them? The answer is no one, and if they do it will be at much lower prices sending interest rates sky high to attract investors.

http://www.howestreet.com/story.php?ArticleId=898