Chapter 7 - Solutions for a Financial Crisis » Chapter 7 Bankruptcy

A popular source of debt pain is experiencing some of their own.

According to a report from the Financial Times, major credit card issuers Citigroup and other is having difficulty selling their unwanted assets in an attempt to improve their balance sheets. Other companies are also trying to get in on the act.

Among the troubled assets that Citigroup wants to offload are car loans worth upwards of $3 billion. According to the Financial Times’ sources, Citigroup has been in talks with private hedge funds and equity groups about their sale. Bankers close to the situation report that initial reactions in the talk are “promising,” which may be in some part due to Citigroup’s incentivizing, which could include providing several years of financing for the asset purchasers.

Some of Citigroup’s loans have already been securitized by TALF, term asset-backed securities loan facility, which is a government program that provides support for the securities market, which has been in poor health during the financial crisis.

There are those who do not share such a rosy view of the market for such troubled assets, however.

Some private equity groups and hedge funds told the Financial Times that there is not enough market to support the sale of securitized bonds like the ones in question. These bonds are backed by cash flow from the loans themselves, which could possibly make them less attractive to buyers.

There has also been some concern that a securities market in trouble, and being bolstered by the government, could lead to trouble for securities buyers who find it difficult to maintain financing after Citigroup’s financing offer comes to an end. Such uncertainty will not likely help Citigroup and other financial firms sell these bad assets and get their books back on track.

The head of a large private equity firm spoke to the Financial Times, telling them that “private equity can’t make a bid on anything where the business model requires a bet that the external funding markets and securitization comes back.” The system, in other words, may not be healthy enough for buyers to gamble that it will recover.

The securities market played a large role in the economic crisis and chapter 7 bankruptcy growth, as many loans were gathered into bundles that could be easily bought and sold on the market.

As the demand for these bundles increased, more mortgages and loans were handed out. When many of these excess loans went into default, the result was a domino effect from which the securities market has yet to recover.

Government programs have propped up the market to some degree of late, but these programs are set to expire soon, and the market itself has not reemerged completely.

There are also new rules that require banks to include securitized loan bundles on their balance sheets, and that therefore capital has to be allocated to them.

Citigroup was the recipient of a massive government bailout in 2008, during the global financial crisis. The U.S. government became a 36 percent shareholder in early 2009, though that share has decreased since then in large sales of common shares. Citigroup has since repaid $20 billion in government bailout money.