Citigroup\'s $9.8bn sub-prime loss

Date: Wednesday, January 16, 2008
Author: BBC News

US banking giant Citigroup has reported a $9.83bn (£5bn) net loss for the last three months of 2007.

Chief executive Vikram Pandit said the loss had been caused by a $18.1bn exposure to bad mortgage debt and was "clearly unacceptable".

The company, the largest banking group in the US, said revenues during the fourth quarter fell 70% from a year earlier to $7.2bn.

Mr Pandit has pledged to turn around Citigroup's fortunes.

'Tight control'

It was also announced that Citigroup is going to get a cash injection of $6.88bn from Singapore government investment agency GIC, while the Kuwait Investment Authority said it had bought a $3bn stake in the firm, as well as a $2bn holding in Merrill Lynch.

CITIGROUP
Citibank was founded in 1812 in New York
It has 200 million customer accounts in 100 countries
More than 300,000 employees
$2.4 trillion in assets
Sources: Citigroup, Reuters

This follows a similar $7.5bn investment in Citigroup from another government agency, the Abu Dhabi Investment Authority, last November.

The firm also said that it would be cutting its dividend for the quarter by 41%, from 54 cents to 32 per share, as well as raising $14.5bn by selling securities, which includes the investment from GIC.

Citigroup chief executive Vikram Pandit
Mr Pandit faces a tough job in turning around Citigroup's fortunes

"We have begun to take actions to ensure that Citi is well positioned to compete and win across our franchises while effectively keeping a tight control over our business risks," said Mr Pandit.

Mr Pandit took up the top job at Citigroup only last month, following the departure of his predecessor, Charles Prince.

Mr Prince resigned in November after the full extent of Citigroup's sub-prime mortgage losses began to emerge.

'Credit woes'

The sub-prime market is focused on providing loans to those with limited or poor credit histories.

MAIN SUB-PRIME LOSSES SO FAR
Citigroup: $18bn
UBS: $13.5bn
Morgan Stanley $9.4bn
Merrill Lynch: $8bn
HSBC: $3.4bn
Bear Stearns: $3.2bn
Deutsche Bank: $3.2bn
Bank of America: $3bn
Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn
Freddie Mac: $2bn
Credit Suisse: $1bn
Wachovia: $1.1bn
IKB: $2.6bn
Paribas: $439m
Source: Company reports

Timeline: How the sub-prime crisis unfolded

During the US housing boom, this market expanded significantly. But a series of interest rate rises over two years meant many sub-prime borrowers could no longer afford their monthly payments, causing them to default on loans.

Citigroup is far from alone in being hit by bad debt, but its write-off is by far the biggest announced by any bank to date.

Analysts generally welcomed the results, as the $18.1bn bad debt write down was less than market expectations of $20bn.

However, analysts had mixed views on what message cutting the dividend and selling securities sent to the market.

"It does nothing to send any signal that we are anyway near the end of the road that we've been going along for the past seven months, in the overall credit market woes," said Howard Wheeldon, senior strategist at BGC partners.

Despite press reports that Citigroup would announce more than 20,000 job losses, none have so far been revealed.