Trade + Citigroup

Trade: closed DCR at $3.99 yesterday for 28% gain. The nav has dropped below $2.50, and the termination trigger has been activated. However, the shares won't be redeemed until the end of the quarter. With the dollar plumbing all-time lows against the Euro, I think it would be greedy to try for more.

On to Citigroup. I am so tempted to short more now. It's up 8% on $15 billion in writedowns. On top of that, their debt ratings are under pressure of downgrades.
The losses are spreading from subprime throughout the whole company, encompassing leveraged loans, commercial real estate, and auction rate securities.
Here's a prime example of why the writedowns aren't over:

I was particularly interested by one component of the $13 billion in write-downs: $1.5 billion on auction-rate securities. Citi had $11 billion of these animals in February, but by the end of March, after write-downs and sales, it had brought its exposure down to $6.5 billion. Let's say that it managed to sell $3 billion at or around par, and that it wrote down the remaining $8 billion by $1.5 billion. That would mean that Citi is valuing its unsold ARS portfolio at just 81 cents on the dollar. - Felix Salmon

Let's look at excerpts from another story:

April 18 (Bloomberg) -- ``To have subpoenas and the threat of criminal investigations raised suggests that somebody has made up their mind that there really are abuses there,'' said Donald Langevoort, a former Securities and Exchange Commission attorney.
...
Citigroup Inc., the biggest underwriter of municipal auction debt from 2000 to 2007, this week predicted the market will ``cease to exist."

From the first article, we learn that Citi has $6.5 billion in Auction Rate Securities still on the books. From the second article, we learn that these are not assets, but liabilities. Although the author of the first article suggests that $6.5 billion includes a 20% writedown, they have only written client's accounts by 5%. I see at least another few billion in writedowns here.

Another large source of writedowns for the second quarter will come from leveraged buyout loans. Citi just sold $12 billion worth yesterday. From what I remember, they sold at about a 10% discount. However, Citi gave the buyers a free put option worth another 10% of the price by agreeing to cover the first 20% of losses. In addition, the buyers got to pick and choose what they wanted. What this means is that although Citi has been boasting about reducing it's exposure to fictitious capital, it's just been concentrating the risk in a smaller dollar amount of exposure. Although the exposure to LBO loans is $12 billion smaller, the risk of losses is not much smaller at all.