Citigroup reports $5.1 billion loss
NEW YORK (AP) - April 18, 2008 With banks expecting more loans to go sour, people can expect
tight lending standards for many months - perhaps years - to come.
"Underwriting standards have to be high. That's the way to
dampen potential losses you might face," said chief financial
officer Gary Crittenden in an interview with The Associated Press.
He said that historically, deterioration in consumer credit has
taken eight to 10 quarters, or at least two years, for rates of
delinquency and default to recover.
Citigroup Inc. is struggling with not only a troubling lending
environment in the United States, but also a dented portfolio of
investments. The bank's write-downs, plus more than $3 billion in
costs related to consumers' credit problems, led it to report a
first-quarter loss Friday of $5.1 billion, or $1.02 a share.
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. Since many investors
had been bracing for even more dismal results, Citigroup shares
jumped $1.08, or 4.5 percent, to close at $25.11 Friday.
But it is hardly smooth sailing for the bank from this point on.
Citigroup essentially lost in the first three months of the year
what it earned 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 Thomson Financial.
"We're not happy with our financial results this quarter -
although they're not completely unexpected, given the assets we
hold," said chief executive Vikram Pandit during a conference
call.
Because Citigroup has lost so much money, it 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,
about 9,000 on Friday, and suggested more work-force reductions are
likely.
"We're very, very focused on efficiency," Pandit said during
the analyst call.
To be sure, it appears that Citigroup, like most other large
banks, has already been aggressive in writing down its assets to
market value, and that the biggest write-downs may have been taken
already. Write-downs in the first quarter were $4 billion less than
the fourth quarter's $18.1 billion.
Citigroup's $14.1 billion in first-quarter 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.
But with significant exposure to problematic mortgages and
leveraged loans still on its books, Citigroup does remain at risk
for further write-downs. Fitch Ratings on Friday 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," Crittenden said during the analyst call.
Meanwhile, echoing other banks that have reported financial
results this week, Citigroup said it faces a deteriorating
environment for consumer lending. Charge-off rates keep climbing
for mortgages, credit cards, auto loans and other types of loans.
"The consumer is being pinched - it's not just homes," MacLeod
said.
To prepare for more consumer loan losses, the company added
about $2 billion to its reserves.
"Everybody is swimming in the same pool here. Everybody has
issues," said Byron MacLeod, earnings quality analyst with
Gradient Analytics. But compared to other banks, MacLeod said, the
rate at which Citigroup is having to write off loans is
particularly high, relative 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."
The bank ousted CEO Chuck Prince late last year and promoted
Pandit, a former Morgan Stanley investment banker, as it scrambled
for cash. In December and January, Citi raised over $30 billion
through sales stock to outside investors, some of which have been
funds run by Asian and the Middle Eastern governments, and other
assets. It has also reorganized its mortgage business and wealth
management unit.
Octavio Marenzi, head of the research and consulting firm
Celent, said banks need to be shrewd as they slash costs.
"Cost cutting programs must be carefully managed," Marenzi
wrote in a note, "since in the past they have frequently not
actually improved performance, but have worsened it in the medium
term."
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On the Net:
Citigroup Inc.: http://www.citigroup.com