Citi Jet Purchase:$50 Million Despite $45B Bailout

[MacBeth]

The New York Post's Jennifer Keil and Chuck Bennett reported in Monday's paper that Citigroup, which has received $45 billion in government bailout funds, is about to upgrade to a new $50 million, twelve-seat corporate jet.

The plane, the Dassault Falcon 7X, is a luxurious jet with a range of 5,950 nautical miles (meaning it can fly from New York to all of Europe and South America, as far east as Riyadh, and as far west as Honolulu or Petropavlovsk, Russia). The Post reports it has "plush interior with leather seats, sofas and a customizable entertainment center."

The Dassault website describes the wide, generously appointed cabin, but says the "the airplane's most welcome feature may be Dassault's breakthrough environmental system." It touts "quieting acoustics" and advanced temperature monitoring that contribute to a more comfortable passenger experience.

The Post also reports that Citi executives are "quietly trying to unload two of their older Dassault 930EXs," worth approximately $27 million each.



www.huffingtonpost.com/2009/01/26/citi-jet-purchase-50-mill_n_160807.html

[MacBeth]

John Thain's Redecoration Refund: Will Pay Back $1.2 Million To Bank Of America

Former Merrill Lynch CEO John Thain said the acquisition of the brokerage giant by Bank of America was the right thing to do but blames Merrill Lynch's huge losses on the administration of his predecessor, Stanley O'Neal, according to a memo Thain sent to Merrill Lynch employees after his ouster last week.

Thain also says he'll reimburse Bank of America for the $1.2 million renovation of his office last year, which sparked controversy last week after it was reported by CNBC.

A copy the memo was obtained by CNBC in advance of a scheduled interview of Thain on the "Closing Bell" program Monday afternoon.

In the memo, Thain said the decision to sell Merrill Lynch to Bank of America was "the right one for our company and our clients." He acknowledged the deal has been a difficult one to execute, but said he maintains his belief in "the strategic rationale of the transaction."

Thain also said the media had inaccurately reported his company's year-end bonus payments. He said the 2008 bonus pool was 41 percent lower than 2007, and the pool was substantially smaller than the merger agreement permitted.

He did not specify how those comments differed from media reports.

On the subject of last year's "large and unfortunate" fourth-quarter losses, Thain blamed "legacy positions" and " market movements."

He said he had been "completely transparent" with Bank of America, and pointed out that the acting chief financial officer of his businesses had been Bank of America's chief accounting officer

"They learned about these losses when we did," he wrote. "The acting CFO of my businesses was Bank of America’s former Chief Accounting Officer. They had daily access to our (profit and losses), our positions and our marks. Our year end balance sheet target (which we more than met) was given to us by Bank of America’s CFO."

He characterized the $1.2 million renovation of his Merrill Lynch office, conference rooms and a reception area as "a mistake in the light of the world we live in today," although the costs were incurred more than a year ago "in a very different environment." He promised to repay the costs.




www.cnbc.com/id/28854480

[crazielollie]

Maybe it's kind of "what would the word think" if the bankers went wherever flying coach.

Actually, we have a bank here that had a branch in a trailer. Most folks in other areas would be extremely suspect of such a bank. Here it's OK with most - the less one spends on niceties, the more money there is to do business with. Most of the US and most of the world doesn't think this way though.

[MacBeth]

Lollie, I am constantly amazed that you see your little corner of the world as being reality-based and down to earth, with the rest of us living in a world where everything is superficial and very clearly inferior to your area.
What made you believe such a thing? I have lived in metropolitan areas, rural farm areas and suburbs - and I found the same sort of people everywhere....some good,some not, some superficial, some not. It is not the size or place that changes things. Our perception of them does. And when we want to see different, we do. Whether it is true or not.

[MacBeth]

Citigroup will not take possession of new aircraft



NEW YORK – Citigroup won't be getting a new corporate jet after all. Under pressure from President Barack Obama, one of the nation's largest banks reversed course, announcing that it will not take delivery of the jet it had planned to purchase before the credit crisis unfolded.

The canceled deal came as many politicians voiced concern about how banks are spending government bailout money.

The White House reached out to Citigroup on Monday to reiterate Obama's position that such jets are not "the best use of money at this point," calling them "outrageous" spending for a company getting taxpayer dollars, said a White House official who spoke on condition of anonymity because the official was describing private conversations.

In a statement late Monday, Citigroup Inc. said it paid a deposit in 2005 to acquire the jet. The New York-based bank said it did not plan to use government money for the purchase, and it noted that any cancellation of the deal would probably lead to multimillion-dollar penalties.

On Monday, the New York Post reported that Citi was set to take possession of the jet even after receiving $45 billion from the government.

The government is also providing guarantees on hundreds of billions of dollars of Citi investments in mortgages and other troubled investments.

With the cancellation of the jet deal, a deposit on the plane will be lost, but is recoverable once the jet is sold, according to a person familiar with the situation. Citi was in the process of purchasing a Dassault Falcon 7X for $50 million, the person said.

Citi is also planning to cut the number of corporate jets in its existing fleet from five to two, said the person, who also spoke on condition of anonymity because the details have not been made public.

Corporate jets have become controversial during the credit crisis as critics of large companies question the cost of owning and operating the aircraft, especially for businesses receiving government help.

In November, executives of automakers Ford Motor Co., General Motors Corp. and Chrysler LLC were sharply criticized for flying on corporate jets to Washington to ask Congress for federal bailout money.

Amid the credit woes, Citi has been working to streamline its operations and shed assets to regain profitability. The bank has posted five consecutive quarterly losses, including a fourth-quarter loss of $8.29 billion.

Earlier this month, Citi reached a deal to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley. Citi has also announced plans to split its operations into two units, separating its traditional banking businesses from its riskier operations.

Citi may have to wait a while to recover its deposit on the canceled jet deal, as the market for corporate aircraft has softened with the economy.

Before the jet market cooled last year, speculators sometimes placed orders with no intention of taking delivery of the plane. They would sell their position in line.

"There was such a backlog — three- or 3 1/2-year waits — people could buy positions and flip them for a profit," said Robert F. Agnew, president and chief executive of aviation consulting firm Morton Beyer & Agnew. "Selling a slot today is probably very difficult."

Agnew said buyers typically pay a few percentage points of the purchase price when placing the order, then a series of payments as production begins and other milestones are reached.

They might pay about 35 percent of the cost before taking delivery, then pay the balance when taking the plane, he said. At that rate, Citi could have already spent $17.5 million on a plane it will no longer receive.

Agnew noted that upfront costs can be much lower when the buyer and seller have a strong relationship, but he said he was not familiar with Citigroup's arrangement with Dassault.



news.yahoo.com/s/ap/20090127/ap_on_bi_ge/citigroup_jet

[wayneinfl]

If I squandered all my money on bad investments and somebody dumped $45,000,000,000 in my lap, I'd probably buy a $50,000,000 jet, too. ;D

If you want to reward bad behavior, this is what you get.

On a positive note, I'm sure there are workers at a jet airplane factory somewhere who are happy to keep their jobs a little while longer.

[oskar]

Mais oui. Zee workers of France sank you.

[crazielollie]

Beth,

Maybe it's because of the very things that are said. WE HAVE to have a lavish celebration for an inauguration even though we're in debt up to our necks because "what would the world think" if we didn't.

I said nothing about anyone not living this life being "inferior". "Standards" do evolve though and the banker in a sears suit flying coach who didn't know how to hold a golf club wouldn't fit in in most banking circles. The reason to get into Yale or Harvard is as much for the "contacts" as the education. Actually, I have a bit more compassion for what many see as the stupid things that are being done by some companies right now. They're now accountable to people who don't understand what their standards are and for those who have been doing things in a certain manner for years, don't even see what's "wrong" in the eyes of those who haven't been living with their standards until it's pointed out to them. I never said it was more "reality based" to lived here. Why do you pick so much on this. I only point out that there are other ways to live than the way you do and many more different from the way I live now. I was raised and lived a good part of my life in major cities. It's a different life and a different way and, if you want to call it that, a different reality. Things that were acceptable there aren't here and and things that aren't acceptable here were there. This area had nothing going for it other than that it was 30 years behind the city in many ways and it made it a good and safer place for kids. The working community was an excellent experience. Drugs weren't a problem even in high school when I raised my daughter but were starting to creep in by the time my son got there. There were guns galore but violence was minimal. Maybe there are answers to problems if we were willing to look and understand why. The welfare of the elderly and the poor in the community were often taken on by the community without outside help. This is a good thing. Your response is that it doesn't happen. It did here and in many small communities (and neighborhoods) in this country(although we're losing it - catching up with the times).

Companies have provided innumerable perks to those on the high. The higher in salary one gets, the more expensive the perks. That makes sense. I can buy a "morale boost" by having pizza's delivered for lunch to the employees on the lower end. Offering the same to executives making over a million a year wouldn't have the same effect.

I don't think the people in the cities here voted for some of the things they did because they hate the rural population. They just have a lack of understanding as to what some of the things they think are great will do to others. It's the same whether it's economics, religion, race or anything else. It's danged hard to understand a different lifestyle if one is isolated from it. I see it everyday. We have representatives that don't realize that if we're going to spend tax dollars at a time when millions will be without even the necessities of life, then we need to spend them in ways that serve basic needs. Not only create jobs but do so in a way that keep the necessities going and leave out the frills. Then, again, what is and isn't a frill has to do with the standards on has. Keep the bridges from falling down, do things to make us less dependent on oil, etc.. Obama sees this - unfortunately, a lot of congress doesn't and are still playing the "pork game" at a time when this country is in crisis. I don't think all of them playing the game are doing it because they hate this country. They just don't understand. They're just like many of the corporate heads who can't wrap the heads around the word "broke" or "crisis" where it has a real and personal meaning. The fact that their actions now can actually mean a difference of whether or not many can pay the grocery bill doesn't hit them. They don't know this kind of poverty because they've been isolated from it. It effects people differently. Some think everyone who has a problem needs government help and some think no one does. The truth lies, as it usually does, somewhere in the middle.

I don't know what you're picking on. Your community has standards that are different from mine. Go 10 miles down the road and this bank couldn't open up in a trailor as it wouldn't be allowed. There are reasons for both. I didn't say one was better than the other, just stated that it existed. Part of the cost of business is meeting the standards of a community. With high flying bankers, they probably saw nothing wrong in purchasing a new jet.

[MacBeth]

I am not interested in playing this game of many words to say the same thing over and over. You see the world one way. I have seen a very different world - but one that remains pretty much the same whether it is in a large city, a suburb or a rural area (where I live now there are more cows in the county than people). If it is important for you to see your community as different from the rest, so be it. I do not believe that is the case from my experience - but your community might be the exception to the rule. I do not really believe that is the case, but it is always possible I suppose.

[gr8designer]

I live in a city of almost a million people. Banks, and other businesses here, often open in construction trailers while their buildings are being built. It's not just a "small town" thing.

[MacBeth]

Thank you for that, gr8. Things are pretty much the same all over IMO.

Shoot, when I lived in the suburbs and the schools could not hold all the students, we used trailers for classrooms for several years.

[crazielollie]

Beth,

This isn't about one community vs another. It's about standards and I can understand why they thought getting a jet was no problem. This is what they're used to.

I didn't write about trailers but rather about perspectives and standards and they differ by what one is used to. I've never said one thing about life been "superior" or "inferior" here. That's all YOUR perspective.(However, if y'all are hung up on the trailer thing - it's not a construction trailer - this is it).

How you can deny different standards when you see them everyday and even comment on them (the white house china thing was "too much" by your standards)amazes me. Can you not understand that someone living with a much higher lifestyle standard than yours or mine wouldn't consider a jet as anything more than a "normal" business expenditure? I'm not saying it was the right thing to do in my opinion, only that I can understand it.

[MacBeth]

Most folks in other areas would be extremely suspect of such a bank. Here it's OK with most - the less one spends on niceties, the more money there is to do business with

I can only go by what you way, Lollie. And this does not match up with the most recent explanation of what you are trying to say. Most is not the few who think this way. Yes, there are those that feel entitled - but they are everywhere. Living all over has taught me that.

[wayneinfl]

"Mais oui. Zee workers of France sank you. "

As do the workers of the Dassault Falcon plants in the U.S.

[crazielollie]

Yes, most in this area see no problem with that town or its standards even though the town 10 miles down wouldn't have accepted it for a number of reasons (although they have invested in it). It's a question of lifestyle. The super fancy expensive buildings that are demanded as "proof of stability" in a very wealthy town 35 miles away insist that the bank build in accordance to what they consider proper for a bank. They wouldn't get accounts if they didn't. Does it make sense? Actually, no. The less spent on appearances, the bigger the bottom line.

Does it make sense? Not to me. As long as the bank is secure, I'm happy. To many security is defined by appearances. The higher up one goes in the economic scale, the more that is demanded. The point is, whether you can see it or not, I CAN understand why they were willing to invest in that plane. In truth, it was an "investment" - so was the newly decorated office. A trash can from Wal-Mart and a desk from office supply wouldn't have cut the mustard.