Presentation on LIBOR, Citi Dividend Expectations and Naked Short Selling

Grande, Patricio; Singh, Lehana; Pisarchyk, Alena; Lozano, Humberto

Effect of WSJ Article on LIBOR Rate

4/7/2

008

4/8/2

008

4/9/2

008

4/10/2

008

4/11/2

008

4/12/2

008

4/13/2

008

4/14/2

008

4/15/2

008

4/16/2

008

4/17/2

008

4/18/2

008

4/19/2

008

4/20/2

008

4/21/2

008

4/22/2

008

4/23/2

008

4/24/2

008

4/25/2

008

4/26/2

008

4/27/2

008

4/28/2

008

4/29/2

008

4/30/2

0081.70%

1.80%

1.90%

2.00%

2.10%

2.20%

2.30%

2.40%

2.50%

2.60%

2.70%

2.80%

2.90%

3.00%

3.10%

Implied Interest RatesLibor 90 Days

Conclusion – Effect of WSJ report on LIBOR Reporting's

• On April 16th the implied 90 day interest suffered a decrease but the LIBOR 90 day interest rate increased

• Early quick shift around April 16th was only due to the banks reaction to the WSJ's article allegations

• In the next following 2 days both interest rate increased.

• Apparently Banks were not reporting rise in interest rates

January - Estimates of PV(D)

2-Jan-08

4-Jan-08

6-Jan-08

8-Jan-08

10-Jan-08

12-Jan-08

14-Jan-08

16-Jan-08

18-Jan-08

20-Jan-08

22-Jan-08

24-Jan-08

26-Jan-08

28-Jan-08

30-Jan-08

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Daily PvD Estimate

Dayly PvD Estimate

April - Estimates of PV(D)

7-Apr-0

8

8-Apr-0

8

9-Apr-0

8

10-Apr-0

8

11-Apr-0

8

12-Apr-0

8

13-Apr-0

8

14-Apr-0

8

15-Apr-0

8

16-Apr-0

8

17-Apr-0

8

18-Apr-0

8

19-Apr-0

8

20-Apr-0

8

21-Apr-0

8

22-Apr-0

8

23-Apr-0

8

24-Apr-0

8

25-Apr-0

8

26-Apr-0

8

27-Apr-0

8

28-Apr-0

8

29-Apr-0

8

30-Apr-0

80

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Daily PvD Estimate

Daily PvD Estimate

Conclusion – Citi Dividend Expecations

• Jan 2008 Not a negative surprise since the market was expecting a larger dividend cut.

• 21st April 2008Citi maintained the same dividend at 32 cents per shareMarket were expecting a smaller dividend till April 17th

Beyond that day the market's expectations starting rising Hence, maintained dividend was surprise to the market.

Naked Short Selling

7/10/2

008

7/11/2

008

7/12/2

008

7/13/2

008

7/14/2

008

7/15/2

008

7/16/2

008

7/17/2

008

7/18/2

008

7/19/2

008

7/20/2

008

7/21/2

008

7/22/2

008

7/23/2

008

7/24/2

008

7/25/2

008

-0.02

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

Economy-wide Lending rateBank of AmericaJP MorganMorgan Stanley

Conclusions – Naked Short Selling

• FED's decision to ban naked short-selling to financial firms increases the lending fee for the financial firms stocks but it does not increase the lending fee for non-financial firms.

• Market interprets this as the financial firms are in trouble so the market wants to short the financial firms stocks because their expectation is that the price of the shares would go down.

Thanks!