Just a week after signing a $787 billion stimulus bill and launching a $275 billion attempt slow down the rate of housing foreclosures, President Obama is advocating fiscal responsibility. It’s curious time to imagine a plan to halve a $1.3 trillion budget deficit (as Obama pledges to do by 2013) when you own 40 percent of Citigroup and may have to up your stake in AIG. Hell, at this rate, Obama, the Fed, the Treasury and FDIC might have to nationalize the entire banking industry, which has $3.25 trillion in debt, according to research by Dick Bove, a well-known analyst now with Rochdale Securities. As Bove wrote in a note yesterday, “Wait, there’s more.” Bove calculates that the banking industry also has $1.3 million in preferreds outstanding, bringing the nationalization tab to $4.6 billion. Oh, and since the banking industry has $8.7 trillion in deposits, which, Bove says, “would become the direct debt of the United States on nationalization.” So, in sum, the public debt would jump by 229 percent. (Bove says the total U.S. debt is $10.5 trillion, of which, $5.8 trillion is held in public hands.)
So, yeah, we’re curious how the Obama Administration will cut the budget deficit (to speak nothing of total debt). The President will likely reveal some of his magic plan tonight to a joint session of Congress. Federal Reserve Chairman, Ben Bernanke, is offering some of his own magical predictions: The recession will end in 2009 only if Washington’s efforts are successful in restoring stability. Someone should really let the stock market in on that secret to economic recovery; investors clearly haven’t been too psyched about Treasury’s plan. Click here for more of Bernanke’s insight.
If hearing about health care reform and fiscal responsibility in a joint session of Congress isn’t your idea of a Tuesday night well-spent, Morgan Stanley CEO, John Mack, will sit across the table from Charlie Rose tonight and give his take on the state of the economy. Among highlights, Mack says he expects a reduction in certain businesses at his firm. “Some of the businesses that we’ve been in in the past are going to be curtailed, I’m not sure if it’s private equity, the real estate business,” Mack tells Rose.
Meanwhile, AIG is looking for a Citi-esque loan restructure from the government. AIG may restructure its rescue package by converting the government’s preferred shares into common stock to reduce pressure on the company’s cash flow. According to the Journal, the government’s initial loan of about $60 billion would be repaid with a combination of debt, equity, cash and operating businesses.
In good news for AIG, the insurer seems to being making some progress in selling off portions of its business in order to raise capital. MetLife and Axa SA are said to be making bids for AIG’s American Life Insurance Co. MetLife’s preliminary offer of $112 billion for the life insurance company may decline to about $8 billion due to waning of the unit’s financial condition, according to a Bloomberg report.
AIG’s is still in the midst of selling its Retirement Services business (which includes the firm’s three independent b/ds [FSC Securities Corp., Royal Alliance and the SagePoint Financial, formerly AIG Financial Advisors). Potential buyers of the unit include a significant number of private equity firms, according to advisors at the b/ds. Click here to read more about the sale of AIG’s Retirement Services.