Systemic Risk is All About Innovation and Incentives: Ed Kane
November 2, 2009 “My dear sir, the Treasury order is popular with the people everywhere I have passed. But all the speculators, and those largely indebted, want more paper. The more it depreciates the easier they can pay their debts… Check the paper mania and the republic is safe and your administration must end in triumph.” -President Andrew Jackson writing to President Martin Van Buren regarding the Specie Circular 1837 Last week the financial markets received a wake-up call courtesy of our former PruSec colleague Mike Mayo, now of Caylon, who appropriately suggested that Citigroup (NYSE:C) may be required to start recognizing the impairment of some $10 billion in deferred tax assets in its Q4 earnings. The good folks at C responded as only bank IR flaks can, saying that did not know where Mayo came up with his estimate. Well, duh! Unlike most of the inhabitants of Wall Street, who barely read the first page of earnings press releases, Mike actually reads Ks and Qs. For example, on Page 10 on the most recent Form 10-Q filed by C, you will see a fascinating discussion of the “TAX BENEFITS PRESERVATION PLAN” implemented by C managers to prevent a write-down of these icky intangibles, an accounting event that would seriously impair the capital of the Queen of the Zombie Dance Party. Likewise on Page 21 of the last Form 10-K for C, you will see a very concise discussion of the composition of C deferred tax assets and also a good discussion of the IRS rules regarding the longevity of same. Just be glad that you are not the audit partner who must sign-off on C’s 2009 annual report. Can’t wait to read that document
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Systemic Risk is All About Innovation and Incentives: Ed Kane