Citigroup Reports Record Loss on $18 Billion Subprime Writedown
By Bradley Keoun
Jan. 15 (Bloomberg) -- Citigroup Inc. posted the biggest loss in the U.S. bank's 196-year history as surging defaults on home loans forced it to write down the value of subprime-mortgage investments by $18 billion.
The fourth-quarter net loss of $9.83 billion, or $1.99 a share, compared with a profit of $5.1 billion, or $1.03, a year earlier, the biggest U.S. bank said today in a statement. New York-based Citigroup also cut its dividend by 41 percent and said it will receive $14.5 billion from outside investors to shore up depleted capital.
``We are taking comprehensive action to position Citi for the future with the capital strength that will allow us to refocus on earnings and earnings growth,'' said Chief Executive Officer Vikram Pandit, who was installed in December after Charles Prince stepped down amid mounting subprime losses.
Citigroup racked up record losses as it misjudged the depth of the mortgage crisis. The writedown for subprime home loans and related securities was almost double what the company expected as recently as November. Citigroup's markdown is the biggest so far, exceeding the $14 billion reported by Zurich-based UBS AG, Europe's biggest bank.
``Things are still bad out there for financials, and there's more bad news to come,'' said Jon Fisher, who helps oversee $22 billion at Minneapolis-based Fifth Third Asset Management. ``The balance sheet is a mess, they've got to raise capital, and the charges keep going up every day.''
Dividend Reduction
The net loss exceeded analysts' estimates of 97 cents a share, according to a survey by Bloomberg. Citigroup has slumped 47 percent in New York Stock Exchange composite trading during the past year. Bank of America Corp., which may report an 80 percent drop in fourth-quarter net income next week, fell 27 percent and JPMorgan Chase & Co., which may post a 31 percent decline in earnings tomorrow, lost 14 percent of market value.
Citigroup, founded in 1812 as the City Bank of New York, cut the quarterly dividend to 32 cents a share from 54 cents. The reduction, the first since the merger of Citicorp and Travelers Group Inc. in 1998, will help save the company about $4.4 billion on an annual basis. The company said as recently as November that it had no plans to lower the payout to shareholders.
Without a capital infusion, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess a bank's ability to withstand loan losses, would fall below the company's target to about 7 percent, Goldman Sachs Group Inc. analyst William Tanona estimated last month.
Great Depression
The fourth quarter may be the worst earnings period for the financial industry since the Great Depression. Analysts estimate Merrill Lynch & Co., the biggest U.S. brokerage, will report a record loss of more than $3 billion after writing down the value of mortgage-related securities, and Bank of America, the second- largest U.S. bank by assets after Citigroup, may report its biggest profit decline since its formation in 1998 from the merger of BankAmerica and NationsBank.
Two days after becoming CEO on Dec. 11, Pandit, 51, bailed out seven so-called structured investment vehicles, shifting $49 billion of assets onto Citigroup's balance sheet and obliging the company to increase its capital cushion. The decision increased the chances that Pandit would have to cut the dividend, according to CIBC World Markets analyst Meredith Whitney. The payouts to shareholders cost Citigroup about $2.7 billion a quarter.
To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .
Last Updated: January 15, 2008 06:39 EST
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