If you want to see a contrast that will blow your mind, go read the transcripts of the Citigroup (NYSE: C) (Cramer's Take) and State Street (NYSE: STT) (Cramer's Take) calls. They are night and day.
Last month we had a raid on State Street, a vicious raid that implied that its conduits, its structured vehicles (basically partnerships it set up for clients) could blow up in the company's face causing billions in losses.
Citigroup has roughly the same kind of partnerships. They were set up to securitize mortgages and sell them to money funds and the like. Given that both have considerable exposure to these kinds of conduits the thought was that both could be crushed by them, but that State Street, given its smaller base of business, could be annihilated.
Having followed State Street for years, and covered some of the accounts there, I was blown away at the insinuations. This is a great bank with phenomenal risk controls. When I called up there to check with my sources I got a clean bill of health and said so on TV, making a point that this was not any old stupid bank but a well-run one that was just being targeted by the shorts for a quick profit.
Citigroup also assured us that its structured investment vehicles -- remember "structured" is a codeword for various bonds mashed into something that is proprietary to the bank and often unfathomable to others -- would have nothing big go awry either.
But this week we found out that Citigroup's controls were so weak -- please don't blame the boss, blame the underlings -- that it had to welcome Treasury help to save itself.
State Street? It broke out everything about its conduits, and there were only a handful of problems, in the small millions, not the billions, and even those were hedged. In other words, the dreadful exposure simply didn't exist because of the diversification, the high quality of the assets -- no downgrades by the ratings agencies -- and the massive insurance and hedges the firm had against defaults. Citigroup was out of control, State was in control.
It got worse. On the Citi conference call, the company acted as if it didn't even know about the Treasury plan even though it was:
- revealed that morning and
- was specifically designed to save Citi.
Meanwhile State Street gave you every bit of data you needed to make your own assessment. I did; here it is: flying colors.
In the ultimate collision of the strong controls/strong business vs. weak controls/weak business drama, State Street included a great chart -- available on the Web -- that showed its exposure in these structured partnerships vs. a composite that included Citigroup. It was laughable. One was pro, the other bush.
Go do this, go read the calls, side by side, you will know what I mean in an instant.
Oddly, right here, I would rather own Citigroup because the Treasury is going to do everything it can to help the worst actor in the business -- just the kind or moral hazard we are supposed to hate but everyone is winking positively about.
State Street? The only thing it needs the feds for is to pay taxes to.
That's what should happen to everyone. Instead, the dumbest and most reckless get rewarded. And nobody at the top gets fired because Bob "Treasury" Rubin has said, Nixon-like, "Four More Years" for the man behind the myth of financial security -- Chuck Prince.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Citigroup.