Citigroup Writes Down $13 B

123jump.com Staff
18 Apr, 2008
New York City

Citigroup, exactly after a deacade of mega merger put together between Citibank and Travelers reported its second quarterly loss in a row. Citi reported a loss of $1.02 per share compared to net income of $1.01 a year ago after revenue plunged 48% to $13.2 billion in the first quarter. Citigroup, sprawling conglomerate of international banking, insurance and investment broker employs 300,000 people. The bank has still not announced plans to reduce its payroll and high cut operating costs.

[R]10:00AM New York – Citigroup reports $13 billion of asset write down and $2 billion of credit costs and its second quarterly loss in a row on falling mortgage securities values.[/R]

Citigroup put together as unwieldy conglomerate of Citibank brokerage and banking services with insurer Travelers, exactly ten year ago this month reported its second quarterly loss in a row. What is conspicuous that the bank has still not announced any significant layoffs.

The bank with nearly 300,000 employees and offices on every continent is suffering from poor risk control, bureaucratic management and but U.S. residential market.

Citigroup reported net loss in the first quarter of $5.1 billion or $1.02 per share compared to net income of $5.012 billion and earnings per share of $1.01 per share.

Revenue in the first quarter declined 48% to $13.2 billion from $25 billion a year ago. Global consumer revenue rose 16% to $15.2 billion and wealth management revenue rose the same to $3.2 billion.

Citi reported a pre-tax gain of $467 million related to sell of Visa initial public offering and after-tax gain of $298 million. Citi raised $19.5 billion in January after reporting asset write down of $18 billion.

Asset write-down of $13 billion and $2 billion in credit costs

The global bank wrote down total of $15.2 billion.

The write downs include $6 billion related to sub-prime loans, $3.1 billion of leveraged loans to leveraged buyouts to private equity groups, $1.5 billion valuation adjustment to exposure related to insurance obtained from inadequately capitalized mono-line insurers, $1.5 billion write down in auction rate securities portfolio and $3.1 billion in costs related to credit card loans.

Core business reports healthy gains

The core business of international retail banking, brokerage services, and private banking reported healthy gains in net revenues. Smith Barney revenue increased 18% and private banking rose 10% and asset under custody rose 21%.

Recently appointed chief executive Vikram Pandit said, “We have taken decisive and significant actions to strengthen our balance sheet, including over $30 billion of capital raised during December and January, a significant increase in our credit reserves, the sale of Redecard shares, the recently announced divestitures of CitiCapital and Diners Club International, and the realignment of and pending asset reductions in our mortgage business.

We continue to enhance our risk management processes, our capital productivity and expense containment.”

He further added, “As we move into the second quarter and beyond, we will continue to divest non-strategic assets and allocate capital to the products and regions that will drive increased revenues.”

Citi reported ‘repositioning’ charges of $622 million including $202 million at Old Lane, the hedged operated by Vikram Pandit which was later acquired by Citi. The bank also recorded expense of $282 million related to investment vehicle in Mexico and reserve of $250 million related to structured investment vehicle for wealth management clients and partial release of Visa - credit card processor, related litigation reserve of $166 million.

Credit costs nearly doubles

Credit costs jumped to $6.0 billion consisted primarily of $3.8 billion in net credit losses and a $1.9 billion net charge to increase loan loss reserves. The $3.0 billion increase in credit costs was driven primarily by higher net credit losses, up $1.7 billion, and an incremental net charge to increase loan loss reserves of $1.3 billion.

Securities and banking services

Advisory revenues in the quarter were down 28% and equity revenue were down 56% from a year ago. Debt underwriting were negative $2.1 billion on $2.3 billion of highly leveraged loans commitment.

ABS CDO exposure declines

Citi lowers its exposure to risky asset backed loans to $29.1 billion from $37.3 billion after writing down $6.0 billion of assets and selling $2.2 billion of assets.

Citi writes downs $6.0 billion on sub-prime related direct exposures. These exposures on December 31, 2007, were comprised of approximately $8.0 billion of gross lending and structuring exposures and approximately $29.3 billion of net ABS CDO super senior exposures or gross exposures of $39.8 billion.

On March 31, 2008, these were comprised of approximately $6.4 billion of gross lending and structuring exposures and approximately $22.7 billion of net ABS CDO super senior exposures or gross exposures of $33.2 billion.