The Banking Industry is Opposing the Turn Around of Citigroup Regarding Cram-Down

The agreement reached between Citigroup and Democrat senators regarding cram-downs has been received with strong opposition from top banking groups. It concerns the rewriting of bankruptcy laws to help the foreclosure victims avoid foreclosure. The banking lobby contended that it would make the taking of house mortgages more expensive.

Others in the industry were querulous about the motivations behind this volte-face of Citigroup. There are speculations that the financial giant has been forced to support the agenda of the government. Since last October the government has given $45 billion to Citigroup. The bank ranks third highest among the recipients of federal bailout money. As per agreement Citigroup accepts the first $29 billion of losses on a portfolio of $306 billion (trouble assets). After that the government takes on 90% of the losses.

Garry Townsend is a seasoned analyst. He said, “The big change between now and a couple of months ago is that the government is backing Citigroup’s balance sheet. The government has a lot of leverage that wasn’t there before.”

Citygroup was reluctant to make any comments. It said the plan being initiated by Democrat Senators Charles Schumer and Richard Durbin is targeted to stop foreclosures. Hitherto Citigroup had opposed changes in bankruptcy laws that would have empowered judges to alter mortgage terms.

The American Bankers Association said last Friday that it did not ditto the agreement between Citigroup and the legislators. The association has repeatedly opposed the giving of bankruptcy judges wide powers to arbitrarily modify the terms of mortgages. Floyd Stoner its executive director of public policy said, “ABA is opposed to the agreement because it will leave in place overly broad mortgage cram-down authority and other provisions that will harm thousands of banks across the country that have made, and continue to make, good loans.”

In response to governmental rescue packages initiated in November the Citigroup had to accept a systematic programme for loan modification for troubled mortgages. Bert Fly a seasoned banking consultant of Alexandria, Virginia said, “The comments I’ve heard from bankers is that Citigroup is seen as suspect, because they’ve received so much money from the government. If Wells Fargo or Bank of America got on board, it would be a much more powerful endorsement.”

There was about 1 million bankruptcy filing (personal) in 2008. Of these 580,000 related to mortgage debts according to Stu Feldstein of consumer finance research firm.