Prices of US single family home plunged by the largest annual amount since records began. The S&P/Case Shiller index of 20 metro cities fell 2.5% in December from November, which is a more rapid pace than the 2.3% decline in the previous period. David Blitz, the chairman of the S&P’s index committee, offered a bleak outlook: “There are very few, if any, pockets of turnaround that one can see in the data… Most of the nation appears to remain on a downward path.”
The financial markets hit an eleven year low yesterday… as concerns over nationalization and a protracted recession came to light. But some investors got a bit of comforting news from Bank of America’s CEO, Ken Lewis, today.
Lewis posted a memo on his company’s Intranet, stating that a larger state by the US government in his company is unlikely and is not even under discussion. “I have said repeatedly that our company does not need further assistance today and I don’t believe we’ll need any more in the future…That includes the potential conversion of the government’s preferred shares into common shares that would dilute existing shareholders.”
Lewis’ comments come on the heels of the widely reported 40% stake by the government in Citigroup that is currently under consideration. In that case, Citigroup reportedly has approached the government with a plan to convert the $45 billion in preferred shares into a new convertible stock which can then be converted over to common equity. This might not call for additional money from the government, but instead it would boost Citigroup’s “tangible common equity,” or TCE.
The TCE is a measure of a bank’s capital and therefore strength. As the Obama administration begins to “stress test” the nation’s banks, many believe that the TCE will be a key measure of the health of a bank and is even more important than Tier 1 capital ratios. Currently Citigroup’s TCE is 1.5% of assets, but regulators want to see a TCE of at least 3% of more.
