2008-11-10 23:58:52
Is Citadel on the Brink of Collapse?
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The Wall Street Journal continues to publish stories about the Citadel Investment Group, and the company continues to assert that they are not true.
A few weeks ago, the Wall Street Journal published a story that claimed that examiners from the Federal Reserve had been questioning Wall Street counterparties to Citadel about their "exposure to debt and other holdings of the Citadel Investment Group."
This led Citadel founder Ken Griffin and COO Gerald Beeson to hold an impromptu conference call in which they denied the story and asserted that the company was stable and not in danger of collapsing. They pointed out that more than 30% of the fund's assets were in cash and that they still had $8 billion dollars in credit available to them from commercial banks around the globe.
Late last week, the WSJ published another negative article about Citadel. This time they claimed that Citadel is being asked by "several major banks" to post additional collateral to cover "big losses on its investments."
Once again, the tight-lipped Citadel Investment Group has been forced to issue a public statement, saying that the report was erroneous and that the company has sufficient capacity to meet its funding needs.
In Citadel's defense, representatives from a couple of the banks listed in the article said that there has been no recent change in their business relationship with Citadel.
Citadel's flagship fund is down almost 40% on the year, which has led many people to speculate that the company may be on the brink of collapse. In the hedge fund industry, 40% one-year declines are nearly impossible to recover from. Capital will normally flee a fund after such a terrible year, and the fund itself will never recover.
So what's the deal with Citadel? We know (for sure) that they are down around 40% on the year. Other than that, the situation is murky at best. Examiners from the Fed may have questioned some of the counterparties to Citadel. Banks may be requesting additional collateral.
Is this a case of where there is smoke, there is fire? Is there something to these stories? Are we going to wake up one day to news of a Citadel collapse?
Or are these stories false? Some are suggesting that other hedge funds may be leaning on Citadel, trying to quicken their collapse by spreading false stories about their company.
What's the truth? We will very likely find out soon enough.
Filed under: Hedge Fund News | The Economic Meltdown
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