Friday, April 18, 2008

Citigroup lops off $14 billion in investments during 1Q

Citigroup lops off $14 billion in investments during 1Q

By MADLEN READ

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Citigroup Inc. said Friday it will eliminate about 9,000 more jobs, after poor bets on defaulting loans and the tumultuous credit markets lopped $14 billion in value from its investments during the first quarter.

That write-down, plus more than $3 billion in costs related to consumers' credit problems, led Citigroup to a quarterly loss of $5.1 billion.

Citigroup has announced 13,200 job cuts since the credit crisis began slamming the banking industry last summer. The bank announced 4,200 cuts in January, and more work-force reductions are likely.

"We're very, very focused on efficiency," said chief executive Vikram Pandit during a conference call.

The most recent quarterly shortfall at the nation's biggest bank by assets was not as massive as the nearly $10 billion loss it suffered in the fourth quarter of last year, though.

Citigroup shares jumped more than 7 percent, or $1.79, to $25.82 in midday trading Friday, as many investors had been bracing for even more dismal results. Citigroup's stock is down 12 percent since the beginning of the year.

But Citigroup essentially lost in the first three months of the year, $1.02 per share, what it made in the same period in 2007 — $5 billion, or $1.01 per share. Analysts, on average, had expected the New York bank to lose 95 cents per share, according to a Thomson Financial survey.

"We're not happy with our financial results this quarter — although they're not completely unexpected, given the assets we hold," Pandit said.

With its significant exposure to problematic mortgages and leveraged loans, Citigroup remains at risk for further write-downs. As a result, Fitch Ratings downgraded the bank's credit rating, while Moody's Investors Services and Standard & Poor's Ratings Services took actions that indicated Citigroup might be downgraded in the future, if the assets on its books deteriorate.

"There's always the prospect that you'll have additional marks," chief financial officer Gary Crittenden said.

Still, the $14.1 billion in write-downs were smaller than the $18.1 billion it marked down after the fourth quarter.

And in another positive sign for investors, total revenue came to $13.2 billion — about half what the bank pulled in during the first quarter of 2007, but more than the average analyst forecast for $12.8 billion. The bank's revenues were padded by its global consumer segment and its global wealth management business.

The bank ousted CEO Chuck Prince late last year and promoted Pandit, a former Morgan Stanley investment banker, as it scrambles for cash.

In December and January, Citi raised over $30 billion through sales of assets and stock to outside investors, some of which have been funds run by Asian and the Middle Eastern governments. It also has slashed costs and reorganized the bank's mortgage business and wealth management unit.

Citigroup, like other banks, still faces a deteriorating environment for consumer lending: charge-off rates are climbing for mortgages, credit cards, auto loans and other types of loans.

"The consumer is being pinched — it's not just homes," said Byron MacLeod, earnings quality analyst with Gradient Analytics.

"Everybody is swimming in the same pool here. Everybody has issues," MacLeod said. But compared to other banks, he noted, the rate at which Citigroup is having to write off loans is particularly high in relation to the amount of loans on its books that are in default or close to default. "That's going to be a serious concern for the company going forward."

To prepare for more consumer loan losses, the company added about $2 billion to its reserves.

Citigroup's $14.1 in write-downs include $7 billion related to subprime and alt-A mortgages; $3.1 billion related to leveraged loans; $1.5 billion related to bond insurers; $1.5 billion on auction-rate securities; and another $1 billion related to commercial real estate, a hedge fund and funds known as structured investment vehicles.

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On the Net:

Citigroup Inc.: http://www.citigroup.com

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