The New York Times reports that S&P held an investment conference yesterday at which leading bankers complained about a rule that requires them to report accurately the value of securities on their books that nobody else wants to own. They complain because this reporting has resulted in $300 billion of losses so far. That cuts into bank earnings and their own bonuses.

Banks naturally don't like having to mark down assets simply because the markets have frozen up. Bob Traficanti, head of accounting policy and deputy comptroller at Citigroup Inc. (NYSE: C), suggested that some assets could be marked as if they would be held until they matured. But this ignores economic reality. If nobody wants to buy an asset, then it has no price. Therefore, for those free marketeers out on Wall Street, the assets have no value at all.

So, as I posted, banks are left trying to make up a value for the assets using computer models on complex spreadsheets. Not surprisingly, different banks use different spreadsheets to value the same kinds of assets. One of the conference participants suggested that regulators should allow banks to get together and compare spreadsheets so they can become more consistent.

Citigroup Inc. (NYSE: C) is unmanageable. That's my conclusion after trying to understand its latest quarterly report. The concept behind this 100-armed corporate octopus is that people like to buy all their financial services in one place and therefore it makes sense to be able to sell them a full line of products from stocks to bank accounts. But I suspect that customers don't want all their financial eggs in one basket, so the concept is fatally flawed.

Moreover, its financial performance reveals that Citi is a complex mess whose many different businesses do not diversify its earnings streams. According to its quarterly report, Citi lost $5.1 billion. Most of the losses came from its Securities and Banking (-$6.4 billion), Alternative Investments (-$509 million), and U.S. Consumer (-$476 million) units. Two bright spots were $1.3 billion in earnings from International Consumer and $732 million in Transaction Services.

But wait, there's more in its huge, risky portfolio. Citi has $40 trillion in derivatives -- enormous bets on interest rates and currencies. And it has $1.2 trillion worth of off-balance sheet entities (remember Enron?). Nobody really knows what these are worth or how much they'll cost. And that doesn't even get us to the $262 billion in Level 3 assets -- illiquid, difficult-to-value securities -- which are 2.1 times Citi's $128 billion in capital. That's a pretty thin cushion for future write-downs.

Big French bank Crédit Agricole is planning to raise over $9 billion after huge losses in its investment bank, which made big bets on subprime related debt, resulted in a big write-down and lower profit.

According to The Wall Street Journal, "Crédit Agricole said it will launch an action plan to refocus the corporate and investment banking division on its core activities and to reduce risk." It may be a little late for that. Much of the damage is already done.

What it is not too late for is the realization that with each new round of bank earnings, the mortgage securities problem is not going away. Several large American banks say they see some light at the end of the tunnel. But if the US mortgage market continues to be marked by defaults and falling housing prices, that point of view may be deeply flawed.

Another point of view is that banks like Crédit Agricole and Citigroup (NYSE: C) are raising money to make up for losses in the past. The more ominous look at the trouble is that they are bringing in capital in anticipation of future problems.

Douglas A. McIntyre is an editor at 247wallst.com.

AIG (NYSE: AIG) is a sinking ship, at least as far as the stock market is concerned. It posted a loss of close to $8 billion last quarter and said it would have to raise over $12 billion. Not a healthy picture for one of the world's largest insurance companies.

Now, one of AIG's key divisions would like to go out on its own. According to The Wall Street Journal, "Officials at powerhouse International Lease Finance Corp. have grown increasingly concerned that the company will be weakened by its parent's financial woes." ILFC, as the company is known, is the largest aircraft leasing company in the world. If AIG has a drop in its credit rating, ILFC will find it more difficult, and more expensive, to raise money.

The ILFC raises, once again, the issue of whether financial services firms put together over the last two decades benefit shareholders at all. What does the aircraft leasing business have to do with insurance? Across town in NY, the board at Citigroup (NYSE: C) is probably asking what relationship Smith Barney has to the bank's international consumer service business.

The more quarterly results that come out from financial giants the clearer it is that some very good operations are trapped inside troubled parents. Why wouldn't shareholders want a piece of the action by having these businesses spun out? The answer is they do want a piece of the success, and there is no reason they should not get it.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

TheStreet.com's Jim Cramer says the guys at the top don't know what they're doing, and it shows.

AIG's (NYSE: AIG) (Cramer's Take) making everyone's life difficult today. That's in part because AIG had been the biggest proponent of "super senior," meaning they repeatedly said that their collateralized debt obligation (CDO) exposure was of the kind that was intelligent, measured and thoughtful. They talked endlessly about how their due diligence made the difference and that unlike all of the other buyers, they kicked the tires three times and never bought the plain ol' CDOs. Then they brought in professors from Wharton to be sure that even if all heck broke loose and they were being too aggressive, they would be hedged.

They also were the first to give you the percentages of how much could go bad and that even in the worst-case scenario, they were overcapitalized. And, most important, they were insurers, no need to mark to market, they can play it all out.

Plus, they touted their own struggles. They made the point that because of the turmoil at the top, they hadn't bought any bad stuff and stopped buying residential real estate products after 2005. What they did buy -- they assured us in that big teach-in dog-and-pony show in December -- was the extra-special nature of their particular buys and that, unlike everyone else, risk officers scrutinized every single piece of paper that went into their super senior insurance, meaning only the top-top part of a CDO-squared, the part where everything had to default ahead of it; they made a point of how impossible that would be.

Reuters reports that Citigroup (NYSE: C) is poised to announce today the sale of $400 billion worth of assets -- that's 18% of the total. We'll need to wait to find out which assets it plans to sell and how much of a loss (or profit) Citi will take when it sells them. But the New York Times reports the company's deciding based on industry growth trends, market positions, geographic growth rates, business plans and financial results.

I worked for a global bank during a credit contraction and part of my job was to figure out which assets to sell. From that experience, I know that Citi's challenge is to find assets that don't fit with Citi but are worth more to another owner. That's because often the assets that make the most sense to sell strategically are the ones that nobody else wants to own. And the ones that make the most sense to keep are the ones that could generate the biggest profit, if sold. Citi's challenge is to sell the $400 billion worth of assets that make strategic sense to sell and will fetch an attractive price. In today's market, that is a challenge.

So what Citi assets could be on the block? Reuters notes that Citi's U.S. student loan business may make sense to sell, after recent legislative changes and turmoil in the securitization market have made it less profitable. Citi may sell Primerica, a consumer sales network for life insurance and investments. And Citi should sell assets on its trading books, which have contributed to much of the $45 billion write-downs that Citi has taken so far.

MAJOR PAPERS:

• Harris Corporation (NYSE: HRS), concerned about its future growth, may see limited opportunity and may consider selling itself, the Wall Street Journal reported. If it does decide to sell, suitors could include Raytheon Company (NYSE: RTN), BAE Systems Plc (OTC: BAESY) and Northrop Grumman Corporation (NYSE: NOC).
• The Wall Street Journal reported that, in an attempt to toughen its regulation standards, SEC chairman Christopher Cox said earlier this week the agency would push Wall Street investment houses will have to reduce borrowing and rely less on short-term financing.
• As part of plans to reduce costs and restore profit growth, people close to the situation said that Citigroup Incorporated (NYSE: C) is likely to today identify up to $400B in non-core assets that could be sold. Additionally, the Financial Times reported that Citigroup CEO Vikram Pandit will confirm his pledge to cut the bank's cost base by about 20% at a meeting with analysts today. Sources familiar with the matter believe Pandit will dismiss calls for a break-up of the company.

OTHER PAPERS:

• According to sources, the New York Post reported that the ax may fall as early as next week on some investment bankers at The Bear Stearns Companies Inc (NYSE: BSC).

Stock futures were once again lower this morning, setting up stocks for a sharp decline after AIG reported a big $7.8 billion loss and oil set a record above $125 a barrel. With credit crunch concerns resurfacing and inflation worries on investors' minds, futures point to heavy losses today.

On Thursday, U.S. stocks ended higher despite another surge in oil prices following better-than-expected April sales reports from many retailers including Wal-Mart and Costco. The Dow industrials ended 52 points, or 0.41%, higher, the S&P 500 rose 5 points, or 0.37% and the Nasdaq Composite rose 12 points, or 0.52%.

Without much economic news set for today except for the March U.S. trade gap, investors will focus on AIG's results and their implication on the financial and credit market as well as on oil prices.

American International Group (NYSE: AIG) reported a quarterly $7.8 billion loss after the market close Thursday. AIG also said it will raise $12.5 billion in the coming months as its capital base has deteriorated due to the crisis in the credit markets. Shares of AIG have declined over 7.2% in premarket trading, but the real affect of its results can seen across the financials as fears have resurfaced once again about the impact of the credit crunch on financial firms.

As if that was not enough, adding to the negative sentiment is oil. Crude oil for June delivery climbed as much as $1.43, or 1.3%, to $125.12 a barrel. While prices have retreated somewhat, they remained near $125 at around $124.8 a barrel. For the week, oil has risen 7.4%, making Wall Street nervous about inflation. Mind you, 55%of 372 petroleum industry executives surveyed by KPMG LLP said they think the price of a barrel of crude will drop below $100 by the end of the year.

TheStreet.com's Jim Cramer says the exchange rate plus massive undervaluations make the great brands prime targets.

There's always been a groupthink in Europe about currencies. The companies that want to buy American companies have, at times, seemed to care more about the currency, or at least not buying a company in a country whose currency is in decline, than they care about the actual target.

That's what it looks like now that a large German company and now a large Italian company have decided to start splurging. It is no coincidence that Deutsche Tel (NYSE: DT) (Cramer's Take) and Finmeccanica are exploring Sprint (NYSE: S) (Cramer's Take) and DRS (NYSE: DRS) (Cramer's Take). These companies are selling for something like 40% off for those bearing euros, and neither potential acquirer has debt problems or subprime issues, so the deals don't have big borrowing problems.

That's what I am thinking about when I see the better-than-expected figures today from Unilever (NYSE: UL) (Cramer's Take) and the other day from Nestle. These companies are part of that same groupthink. They are looking, no doubt, at a Heinz (NYSE: HNZ) (Cramer's Take) and thinking, "Wait, that's about a $10 billion company that's a global leader."

MAJOR PAPERS:

• According to senior industry sources, the Financial Times reported that the Ministry of Defense could ask General Dynamics Corporation (NYSE: GD) to provide the vehicle design for a new generation of armored vehicles for the army. It is unclear whether General Dynamics, in competition with Nexter and Artec, will be awarded the contract or will be named the preferred bidder.
• Following the collapse in March of The Bear Stearns Companies Inc (NYSE: BSC), the Financial Times also reported that the SEC will soon require Wall Street banks to publicly disclose more details about liquidity and capital positions. Cox also urged lawmakers to pass legislation that would allow the SEC, or another regulator, the "explicit mandate to supervise" investment banks.

OTHER PAPERS:

• According to the New York Times, Citigroup Incorporated (NYSE: C) will move senior investment banker Alberto Verme to Dubai by the end of the month in the hopes of establishing a stronger foothold in the region, a crucial area for global banks.
• The New York Times also reported that several large oil companies, including BP Plc (NYSE: BP), ConocoPhillips (NYSE: COP) and Chevron Corporation (NYSE: CVX), agreed to pay nearly $423M in cash in order to settle a lawsuit that alleged water contamination from methyl tertiary butyl ether, a gasoline additive. Under the terms of the deal, the oil giants also agreed to pay 70% of the future cleanup costs for the next 30 years. Exxon Mobil Corporation (NYSE: XOM) and several other companies named in the suit did not agree to the deal.

It was not enough that Citigroup (NYSE: C)'s CEO Vikram Pandit sold the bank a hedge fund business which lost most of it value, now he is being accused of being too slow in coming to decisions and making it difficult to turn the bank around. Investors can always hope he will be pushed out. It would probably add $5 to Citi's share price.

According to The Wall Street Journal, "Even executives who praise his cautious, deliberative approach express concern Mr. Pandit is taking too long to make decisions." Add to that the concern that Pandit has not disclosed his longer-term plan for the business.

The attacks on Pandit appear to be lead by the founder of the modern Citi, Sandy Weill. The deal-maker created the complex company and would probably be best to keep his thoughts to himself. He bears at least as much responsibility for Citi's problems as his hand-picked successor Chuck Prince.

None of that lets Pandit off the hook. He has made no real attempt to streamline the company by selling off any major assets. Is Citi a stock broker though Smith Barney, an investment bank, a consumer bank, or a corporate lender? As Warren Buffett recently pointed out, some large financial companies have become too complex to run. Pandit needs to sell-off some assets and focus the firm on two or three core operations.

Right now, it looks like Citi may have three bad CEOs in row.

Douglas A. McIntyre is an editor at 247wallst.com.

MAJOR PAPERS:

• Three years into its $35B takeover of Nextel, the Wall Street Journal reported that Sprint Nextel Corporation (NYSE: S) is considering selling or spinning off the troubled unit. Few details were available and a deal is not imminent.
• The Wall Street Journal also reported that pressure is mounting on Citigroup Incorporated's (NYSE: C) CEO Vikram Pandit to show that he can turn around the troubled bank. Executives believe Pandit, who has been praised for his cautious and deliberate approach, has been taking "too long" to make crucial decisions.

WEB SITES:

• According to a person close to Google Inc (NASDAQ: GOOG), Reuters reported that Google and Yahoo! Inc (NASDAQ: YHOO) are still "hammering out the intricacies" of a potential advertising and search deal. The source said no final agreement has been reached yet.
• ABC News learned that if Rupert Murdoch does not testify in a lawsuit accusing one of his companies of "corporate espionage," it may cost News Corporation (NYSE: NWS) hundreds of millions of dollars, a federal judge overseeing the trial said. News Corp has denied any wrongdoing, and lawyers maintain Murdoch had no direct knowledge of the unit's alleged hacking into EchoStar Corporation's (NASDAQ: SATS)/DISH Network Corporation's (NASDAQ: DISH) security code and posting it on the Internet.

Because the subprime mess hasn't been invigorating enough, Citigroup (NYSE: C) will now have to go to court to deal with a lawsuit brought by Parmalat, the Italian dairy company that collapsed under the weight of a massive accounting scandal back in 2003.

Enrico Bond, who was brought in to run Parmalat by the Italian government, is reportedly seeking $2-4 billion in damages from Citigroup. Parmalat claims that Citigroup was aware of the company's treacherous finances, and concealed and helped to conceal the truth from investors.

According to Paramalat, "Citigroup faces a very serious charge at the trial in New Jersey - that its bankers helped the corrupt insiders dress up Parmalat's financial statements and loot the company over a number of years."

Citigroup countered that "Citi is a victim of Parmalat's fraud and is confident that the merits of our position will be demonstrated in court."

The layoffs on Wall Street are not over. As a matter of fact, they may just be beginning. Many of the people at Bear Stearns (NYSE: BSC) are already gone. Citigroup (NYSE: C) says it will cut operating expense by 20%. Some of that has to be people.

UBS (NYSE: UBS) may now be looking at a plan to cut 8,000 people. A lot of that will come in the firm's banking division. According to Bloomberg, "The company will probably say it's eliminating between 2,500 and 3,000 jobs in its investment bank, more than 10 percent of the division, two people familiar with the matter said May 2."

UBS has been under some pressure to break itself into pieces to "unlock shareholder value." It is not quite clear how that would work, but management is against it.

The word from UBS is a particularly sad reminder of how the actions of a relatively few traders and executives who bet on mortgage-backed securities will cost tens of thousands, if not hundreds of thousands, of people in the financial community around the world their jobs. Those who are to blame probably already have new employment. At least they can say they were "creative thinkers" when they go for job interviews.

Douglas A. McIntyre is an editor at 247wallst.com.

When the CEO of one of the world's largest money center banks says things in the credit market will be bad for a long time, it is at least worth a listen.

James Dimon, head of JP Morgan (NYSE: JPM) told German publication Welt am Sonntag that he thinks the financial crisis in the U.S. could go on for much longer, according to a report by Reuters. Because Dimon's bank is in fairly good shape and has not had to level of write-offs that many of his peers have suffered, the long cold Winter of finance may not harm his company too badly. That does not go for other banks.

If the stock market is a fairly good proxy for which financial firms are likely to be OK in a prolonged crisis and which are not, then Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C) have to be the top candidates for more trouble. Over the past year, JPM's shares are off about 5%. Citi is down 50% and Merrill is off by over 40%.

If Dimon is right, many big banks and brokerages are in for more write-offs as mortgage defaults move up, LBO debt loses more of its value, and consumer credit card paper gets hit by delinquencies. More write-offs mean raising more capital, something which Merrill and Citi have been doing with regularity.

If the two weak firms need to raise another $10 billion each, it is not hard seeing their shares slide by 15% or more. They almost certainly will survive, but not without shareholders paying a big price.

Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.