The Balance Sheet Shuffle

As always there is more to the story than the headline. It turns out the euphoria surrounding Citi (C) selling 12 bln in LBO loans to a group of hedge funds is nothing more than a balance sheet shuffle. What is really happening is that C is selling the loans at 90 cents on the dollar to TPG, APollo, and Blackstone and then financing the purchase of these loans. It will probably be revealed in time that the loans are actually TPG, Apollo, and Blackstone LBO loans so in essence the hedge funds are buying back their own paper. The PE entities do not have access to the discount window, but C does and therefore they can borrow as much as they like at the current 2.50% and move that through to the PEs. This is a balance sheet move as C is subject to regulatory filings, while the PEs are basically unregulated-plenty of tax haven and off shore entities tied to these entities
Once again, the opaqueness of Wall Street is evident-this action should give investors more concern about the balance sheets of the US financial firms.