What’s Wrong With E*Trade’s Deal, Bank Capital Ratios and Bali

A quick stroll through the Dow Jones blog empire:
First up, Deal Journal:

E*Trade investors are trying to escape the Citadel.

Shares closed down more than 4.5% today after high volume trading.

At first blush, Citadel’s rescue plan Thursday looked like a pretty good deal. But now, many investors are beginning to wonder if E*Trade is burning the village to save it.

Here’s why: Lost in the excitement of the deal was the fact that E*Trade wrote down about $2.6 billion on its balance sheet — $2.2 billion of asset backed securities and $400 million in home equity loans. Citadel will invest roughly the same amount in E*Trade by buying the ABS portfolio for $800 million and taking on $1.75 billion in E*Trade debt.

But E*Trade will pay 12.5% interest on that debt, a hefty premium. (It’s also worth remembering that E*Trade lost about 15% of its deposits for which it paid a much lower interest rate than it will be paying Citadel.)...

From the Real Time Economics blog:
Bank Capital Ratios: More Declines to Come

Falling profits and rapid asset growth have dragged bank capital ratios down to their lowest since the late 1990s, and they’re likely to fall further, says a new report from J.P. Morgan Chase.

But the report, by economist Michael Feroli, says banks have a number of ways to rebuild capital ratios. One of the easiest would be to stop buying back shares. Other options: restrain loan growth, issue additional equity or cut dividends....

Last, but far from least (they have a picture of the tie I wore Tuesday!), the Energy Roundup:

The Journal’s Tom Wright has this dispatch from the United Nations climate-change summit in Bali:

Hopes that participants to the United Nations’ climate-change conference in Bali, Indonesia, would swap their button-downs for polo shirts to save money on air-conditioning appear to have foundered on Day One. Says one member of the United States delegation: “Frankly, everyone is still wearing suits.” And with temperatures a scorching 90 degrees in the shade, don’t expect anyone to be asking for the air-conditioning to be turned down in their $250-a-night hotel rooms, either.

Organizers are pushing shirt-sleeves and urging participants to ride 200 free bicycles between meetings as a way of offsetting the 47,000 metric tons of carbon dioxide expected to be generated during the 12-day meeting....

Here's one of the resorts at Nusa Dua: