Trader Talk

What's Citigroup Up To With Loan Sale?

Citigroupclose to selling $12 b of leveraged loans and bonds to a wide group of private equity firms.

What will they sell the leveraged loans for? Not clear, but it could be as low as 90 cents on the dollar. Also, note that these are bridge loans for deals; short-term loans. They are not subprime or problem loans. These are good loans. That's the bad news: they are selling what they can to raise capital.

The good news is that Citi continues the process of cleaning out its balance sheet, and we are at least getting pricing on the loans, which indicates there is demand for the assets. This will set benchmarks for other leveraged loans. Up 2 percent pre-open.

Of course, cleaning up the balance sheet is only part of the problem facing the big banks. As Sandler O'Neill pointed out this morning, housing related credit continues to deteriorate, investment banking activity levels remain soft, and commercial real estate is showing signs of deterioration.

Residential mortgage related credit deterioration has spread from subprime mortgages to Alt-A mortgages and home equity loans.

UPS cut its first quarter earnings guidance, from $0.94-$0.98 to $0.86-$0.87. Like Alcoa, it complained about high energy costs; they also cited lower volume trends in February which have continued into March. Down 3 percent.

Boeinghas finally thrown in the towel and said that its 787 Dreamliner airplane would be delayed; first flight is now moved to the fourth quarter of 2008, and the first deliveries would begin in the third quarter of 2009 (it was planned for the first quarter 2009). They are not changing their 2008 guidance. Up 1 percent.

Honeywellis happy this morning; their aerospace division won a $23 b contract to supply and maintain engines for Brazil's Embraer. Up 1 percent.

Proctor and Gamble increased its dividend 14 percent to 40 cents.

Circuit City posted stronger earnings than expected. Though acknowledging facing "the toughest macroeconomic environment in years," they say they have stopped the decline in warranties and service attachments, which is a critical part of their profit picture.

Questions?  Comments?