REUTERS) INTERVIEW- Citigroup awaits better, stabler market
INTERVIEW- Citigroup awaits better, stabler market
(recasts lead, adds details)
By Jack Reerink
NEW YORK, Oct 8 (Reuters) - Financial services conglomerate
Citigroup Inc. <CCI.N> has been hurt by big losses at its
securities business, but has the financial muscle to ride out
the current downturn, said the firm's co-chief executives on
Thursday.
The company, the result of a recent merger between U.S.
banking group Citicorp and financial services firm Travelers
Group Inc., earlier on Thursday projected its third-quarter
profits would fall more than 50 percent to $700 million due to
global financial turmoil. Citigroup attributed the results in
part to $700 million in bond trading losses at its Salomon
Smith Barney securities unit, which saw the value of its bond
inventories decline sharply over the summer.
Citigroup's co-chief executives, John Reed and Sanford
"Sandy" Weill, in a brief telephone interview, said the firm
has enough capital to sit out the current downturn in its
securities business and wait for its bond positions to become
profitable again.
"You trim and you cut, but we have the strength of being
able to hold on to positions because we do have good capital
and earnings, and are not forced to dump things onto the
market," said John Reed. "If we think the positions are
fundamentally sound, we're not going to sell them out in a weak
market."
Reed, formerly Citicorp's chief executive, now runs
Citigroup together with Weill, who previously was at Travelers'
helm.
The executives would not say whether the current downturn
across the firm's securities businesses will cause Citigroup to
cut more jobs than the 8,000, or five percent of its work
force, it has already said it may cut before year-end.
"I think that Salomon Smith Barney as well as all of our
companies are looking at what their expenses are as it relates
to their current projections of income, and that's going to
create the need for adjustment," Weill said. The company is
"still growing employment in some areas that are doing well,"
such as commercial lending, Reed added.
"We're opening new offices for commercial credit and some
consumer businesses that have good growth rate," Reed said.
"Other businesses obviously are going to have reduced prospect
in this kind of an environment, and one would expect some
trimming there."
U.S. banks and securities firms have been hurt by global
financial turmoil that has sent emerging markets plummeting and
high-yield, or junk, bond prices down. As a result, companies
had to mark down their inventories of those securities,
resulting in a string of profit warnings.
The downturn is reflected by Salomon Smith Barney, which is
the result of a 1997 merger between retail brokerage firm Smith
Barney and bond trading powerhouse Salomon Brothers, going into
the red in the third quarter. Citigroup said on Thursday it
expected the unit to post a $325 million overall net loss for
the quarter, after accounting for the bond holding losses.
"These are marked-to-market portfolios and obviously the
market has shifted," Weill commented.
The group's Citicorp segment also was hurt by turmoil in
Russia, suffering $240 million in net losses there. That was
$40 million more than the bank previously projected. As a
result, Citicorp's corporate banking group will report a $130
million net loss in the quarter, the company said.
The executives said the company has managed its market and
credit risks well, but was forced to mark down its securities
holdings as a result of the recent financial turmoil.
"It's fair to say we've had all along pretty decent risk
controls," Reed said. "When you have these positions --and
obviously Salomon is a major trader in fixed income-- you'll
have by definition large positions."
The markets, however, could turn around and bring the firm
a fat profit on the Salomon positions.
"I think it's hard to predict (whether positions will
recover), we're going through turbulent period," Reed said. "My
personal guess is that it will probably be early next spring
before we see somewhat more stable and normal markets"
If markets indeed stabilize, Citigroup predicted that next
year's profits would exceed last year's, when it earned about
$7.5 billion.
"The key point is that Sandy and I have set objectives to
what was a good year, and a year when the stockholders loved
us," Reed said. "We're obviously not setting objectives against
1998, which turned out to be a less good year."
((--Jack Reerink/Wall Street Desk (212) 859-1725--))
REUTERS
*** end of story ***
|
