Citi Leads Banks, Markets Lower

123jump.com Staff
05 Nov, 2007
New York City

Market averages opened sharply lower after Citigroup replaced its chief executive and reported more losses in its subprime loan portfolio. Dow, Nasdaq, and S&P 500 fell more than 0.5%. In the overnight tradig Asian markets fell. Hong Kong led the decliners with a loss of 5% on the worries that fund flows from mainland China to Hong Kong market may be delayed. Oil and gold held firm in the early trading.

[R]10:30AM New York – Market averages opened lower on losses from Citigroup and market volatility in Asia and Europe.[/R]

Market averages fell after one hour of opening on the worries of further losses in mortgage securities. Dow, Nasdaq, and S&P 500 fell nearly 0.5%.

Banks and brokerages fell sharply in the morning trading after Citigroup announced “retirement” of its chief executive Charles Prince and declared further deterioration in its sub-prime portfolio.

Citigroup said that it will take a further charge in its fourth quarter beginning on October 1, 2007 to reflect the weakness and lower valuations in the mortgage securities market.

In the statement released on November 4th,Citi said, “at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).

The $55 billion in U.S. sub-prime direct exposure as of September 30, 2007 consisted of approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities.”

European markets fell across the region on the weakness in Asian markets and weak market opening in the U.S.

UK led the decliners with a loss of 1.6% followed by losses in Italy of 1%, 0.9% in the Netherlands, France, and Switzerland.

Banks across the region fell after the Citigroup chief executive Charles Prince “retired” and replaced by Robert Rubin as chairman and Win Bischoff as interim chief executive.

Asian markets closed sharply lower across the region. Hong Kong led the decliners with a fall of 5% followed by losses in Pakistan of 4.6%, in Thailand of 2.4%, in Indonesia of 2.2%, India of 1.9%, and Australia of 1.6%.

Hong Kong markets suffered its worst single-day decline this year after the Chinese Premier Wen Jiabao made cautious remarks on the investment in Hong Kong market mainland investors. After a sharp run up in the last three months Hang Seng Index had jumped 57% at the end of October and Shanghai Composite index had more than doubled for the year so far. Investors used this opportunity to take profit.

Banks in China fell sharply in the session. Bank of China led the decliners in the sector with a loss of 10% followed by losses in Bank of Communications of 8% and China Construction Bank of 6%.

PetroChina stock nearly tripled on its first day in trading in Shanghai listing. The oil explorer and refiner reached value of $1 trillion at close, surpassing other energy companies including Exxon Mobil, British Petroleum, and Total.

PetroChina initial public offering was listed at Rmb16.70 and closed at Rmb43.96 in the public offering in Shanghai and raised Rmb67 billion ($9 billion) and offered 4 million shares, in the largest public offering in mainland China.

ICBC bank raised $22 billion in its IPO in Hong Kong in October 2006. There are at least three other offerings in Hong Kong that are likely to raise more than $3 billion each in the next three months.

Hong Kong listed H-shares of PetroChina values the oil company at a market capitalization of $49 billion, sharply lower than its value when calculated using the Shanghai traded A-shares.