The Wall Street Journal
January 15, 2008
Citigroup Inc. posted a huge fourth-quarter net loss, hit by $17.4 billion in subprime-related write-downs.
The bank announced plans to sell another $14.5 billion in preferred stock and said it will cut its dividend 41%. The company also plans to sell noncore assets. After initially trading higher in premarket trading, shares were recently down to $28.15 from Monday's closing price of $29.06.
New York-based Citigroup posted a net loss of $9.83 billion, or a loss of $1.99 a share, compared with a profit of $5.13 billion, or $1.03 a year earlier. In addition to $17.4 billion in write-downs, the latest results include a $5.41 billion increase in credit costs -- $3.85 billion for loan-loss reserves and $1.56 billion in credit losses.
The bank was expected to report up to $20 billion in mortgage-related losses. The company had warned it might have to write down up to $11 billion. In the third quarter, it wrote down $2.2 billion.
Revenue fell 70% to $7.22 billion from $23.83 billion. The mean estimates of analysts polled by Thomson Financial were for a net loss of $1.03 a share on revenue of $10.64 billion.
"Our financial results this quarter are clearly unacceptable," said new Chief Executive Vikrim Pandit. "Our poor performance was driven primarily by two factors -- significant write-downs and losses on our subprime direct exposures in fixed-income markets, and a large increase in credit costs in our U.S. consumer-loan portfolio."
Mr. Pandit, a former Morgan Stanley executive, was named chief executive a month ago, after Charles Prince resigned from the post amid troubles in the U.S. housing market and the ensuing credit crunch.
Analysts and investors had said that even with the $7.5 billion investment from Abu Dhabi's investment arm in November, Citigroup would need to make up for its fourth-quarter write-downs by finding billions of dollars in new capital, or shedding billions of dollars in assets, to meet its goal of replenishing capital by summer.
A new round of investments announced Tuesday includes $12.5 billion of preferred securities. The Government of Singapore Investment Corp., or GIC, will buy $6.88 billion, which follows the government fund's plan to invest $9.6 billion in Switzerland's UBS AG. Other investors include former Chairman and Chief Executive Sandy Weill and Prince Alwaleed bin Talal bin Abdulaziz Alsaud, already one of Citi's biggest investors.
Citigroup also announced it would offer public investors about $2 billion in newly issued convertible preferred securities.
The bank confirmed it would slash its dividend by 41% in order to retain capital. The company lowered its quarterly dividend to 32 cents from 54 cents a share. The cut will save the cash-starved firm $1.1 billion a quarter. For investors, the dividend cut will be an especially painful sign of how badly Citigroup has stumbled. Citigroup executives had insisted for months that the payout was safe, despite the widening conclusion by analysts that the bank had little choice but to cut it.
Citigroup said Tuesday it will continue to reduce its consumer-based holdings of mortgage-backed securities, and other assets held in its securities and banking business. In the fourth quarter, it cut about 4,200 jobs, after announcing last spring plans to cut 17,000 of its employees. The company currently has about 327,000 world-wide.
Citigroup's U.S. consumer business saw fourth-quarter revenue rise 6%, driven by higher business volumes with average deposits and managed loans, both up 10%. Credit costs increased $4.1 billion -- $689 million from higher net credit losses and $3.31 billion to increase loan loss reserves.
Revenue at its international consumer business rose 45%, driven by organic volume growth, the impact of recent acquisitions and investment gains from Visa's planned initial public offering and the sale of a stake in Japan's Nikko Cordial's Simplex Investment Advisors.
At the company's wealth-management unit, which includes its Smith Barney business, revenue rose 27%, driven by 18% growth in fee-based and net interest revenues and a 43% increase in transactional revenues.
Source: WSJ
Citigroup Swings to a Loss, Plans to Raise More Capital
