A bank is only as solvent as people believe it to be. So when it has to go around touting its solvency, that’s a sign that it is seriously broken.
“Citi has a very strong capital and liquidity position” a Citigroup spokesperson said last night.
“Our capital position at the moment is strong,” Ian Lowitt, Lehman’s CFO, said last September.
“Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity,” the CEO of Bear Stearns last spring. “Bear Stearns balance sheet, liquidity and capital remain strong.”
Should you believe the rumours about executive executions and sales of valuable business units? Well, you should always be cautious. But let’s remember that the rumour mongers have been better predictors than executive statements this year. Going into the weekend of Bear Stearns demise, for instance, it was widely speculated that JP Morgan would buy the most valuable parts of the business at markedly depressed prices. As it turns out, the rumour mongers had only underestimated what would happen.
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