Citi sues Morgan Stanley over CDS, claims $245 million

[UpInArms]

Source: Reuters

NEW YORK (Reuters) - Citigroup Inc (C.N) sued Morgan Stanley (MS.N) on Friday for breach of contract, saying the Wall Street firm owed it $245.4 million for protection it bought on a loan.

Citibank bought a credit default swap (CDS) from Morgan Stanley & Co International in 2006 on a $366 million revolving credit facility it provided to an issuer of collateralized debt obligations (CDO), according to the complaint filed in U.S. District Court in Manhattan.

The swap obliged Morgan Stanley to pay Citibank the money as a result of a payment default on the credit facility to the CDO, known as Capmark VI, it said in the complaint.

Liquidating the CDO collateral did not cover the entire amount, and Citibank said it exercised its right under the CDS to have Morgan Stanley make up for the shortfall, but it refused, according to the complaint.

Citibank paid Morgan Stanley about $750,000 for the CDS, according to the complaint.

Read more: http://www.reuters.com/article/businessNews/idUSTRE58P0E920090926?feedType=RSS&feedName=businessNews

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Maybe the banksters will get guns and do shootouts like they did in the 30s and 40s?


Benjamin "Bugsy" Siegel: Shot To Death On June 20, 1947 In His Beverly Hills Home

[indepat]

1. Geez, it's enough to make one wonder if anyone has cause to sue CITI for similar/related

reason(s)? :P

[bemildred]

2. Good show!

:popcorn::popcorn:

[FreakinDJ]

3. It sure well may be the "Best Show on Broadway" very soon

Citi and Morgan Stanly blaming each other for forcing Homeowners out of their homes and causing "Short-Sales" that further devaluated every home in America

"Pass the Popcorn please"

[Skink]

4. Let's just give them some tax payer money then everyone's happy.

:)

[Vidar]

5. No honor among thieves.

[DJ13]

6. Corporate Cannibalism .... great fun to watch!

[Hawkeye-X]

7. I know a daughter of Bugsy's associate very well.

She is a family friend of ours.

The connections to Bugsy and me is 3.

Me->Benjamin's daughter->Benjamin->Bugsy

[wordpix]

8. Citi pays $750K for a CDS and now Morgan Stanley owes C $245 MM?

I smell a rat but then, Wall St. knows how to turn rats into million$.

[Hawkowl]

9. It was insurance

All these banks bundled up these shit mortgages and bought and sold them, knowing that a large percentage would default. However, the banks reassured themselves by buying "insurance" i.e; CDS (credit default swaps, e.g; derivatives). So all the banks figured hey we're covered when the music stops and it all turns to shit. (Except when the insurance company AIG, goes tits up). The estimated notional value of the total market on these CDS's is estimated up to 600 TRILLION dollars. The entire world's GDP is only estimated to be $60 Trillion. You can see that even a 10% default rate would wipe out the entire world's bank account. It is the mother of all bubbles and the US and the Fed have done NOTHING to fix it yet.

So with all the defaults and bankruptcies and people losing their jobs and can't afford to pay, the banks are now trying to cash in their insurance policies to cover their losses. It has become a titanic cage match to the death between hedge funds, banks, brokerage houses, and the US and Chinese governments (China owns all its banks). The default rate for all types of debt is approaching or well into the double digit rates. It is only a matter of time before the bubble music and incessant "feel good" propaganda stops and virtually all the big banks go formally insolvent.

Meanwhile keep paying out those bonuses! The house is on fire so keep stealing the valuables before they are all burned up!

[wordpix]

12. thanks for a great explanation - I still don't get that a $750K loan is covered for $245MM

A few more questions, and I'll try to simplify this in insurance terms I might understand:

Let's say I want to insure a fine diamond ring that is appraised at $50K. Even if I want to insure the ring for more than $50K, let's say $1 MM instead, it will cost me a lot of dough every month for insurance premiums, way more to insure for $1MM than for $50K. So I'm not likely to do it, b/c I just want to pay a reasonable premium to cover my ring.

So I'm wondering, did the cos. needing insurance for their shit bundled loans pay huge premiums, much more for coverage than the derivatives were worth? :shrug:

Second, would an insurance co. even agree to insure my ring for $1 MM if it's only appraised at $50K? I thought that's what appraisals are for, to base your insurance premiums on that appraisal. :eyes:

Third, if my ring is lost or stolen, would the insurance co. agree to pay me $1MM for the $50K ring, even if I paid for the premium to cover a $1MM item? (I KNOW the co. would put up a fuss about THAT).

:think: Seems to me if the insurance co. insured a $750K loan for $245MM, the insurance co. was monkeying around with the books AND with the co. insuring the shit mortgage loan.

Conclusion: :argh: We the taxpayers will NOT bail out these coke sniffing gamblers as they fight to the death and keep "stealing the valuables before they are all burned up!" (Good quote) :nopity:

[Hawkowl]

13. Ahh

The $750K was merely the premium Citibank paid to JP Morgan to insure a line of credit worth $366 million issued to Capmark VI. Capmark VI apparently defaulted on the loan and Citibank is claiming a $275 million dollar loss and Morgan apparently refuses to pay up.

Now your questions about appraisals regarding CDO (collateralized debt obligations) is a very good question. Appraisals were typically done by Moody's (which were clueless or corrupt), and not based upon reality.

The main problem is that all these banks, hedge funds, insurance companies etc. are leveraged (meaning have borrowed money many times the value of their total assets) in some cases, almost 100%! This is what happened to Lehman Bros. In effect for every dollar of assets they owned, they OWED 97 cents! So once their losses started exceeding 3% they became insolvent. If they could have borrowed more money they could've ridden it out (like the remaining banks are doing right now thanks to Bernake and the Fed). However, apparently Lehman Bros. pissed off the Sec. of the Treasury (former Goldman Sachs CEO Paulson) as well as Bernake and the Fed which refused to offer "liquidity" i.e; loans, to Lehman Bros.

Consequently Lehman declares bankruptcy and all of a sudden all their current borrowed money (the 97 cents on the dollar) is in default. This allows Lehman's creditors such as Goldman Sachs to claim their insurance money from AIG. Ooops! AIG doesn't have the cash because they too are leveraged out the ass which means they are technically bankrupt so they can't pay Goldman Sachs which means they would be bankrupt, which means all their rich hedge fund clients would be bankrupt and WE CAN'T HAVE THE RICH GOING BANKRUPT BECAUSE OF THEIR STUPIDITY!

So if it all sounds like a conspiracy...It's because it is. Simply put, you and I aren't in the club.

[No Elephants]

10. So, do we have to bail out whoever loses this case? Can't have anyone on Wall Street suffering for

THEIR choices, now can we?

[wordpix]

11. good point - the loser here should just LOSE & leave us unemployed taxpayers alone

:grr: