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Citigroup’s Sub-Prime Losses Total $18.1 Billion
by
findingDulcinea Staff
On Jan. 15, Citigroup published its reports for the fourth quarter of 2007; it lost $9.2 billion in three months. CEO Vikram Pandit points to the sub-prime mortgage crisis as the main culprit.
30-Second Summary
Though the loss sounds monumental, the BBC reports that “analysts generally welcomed the results, as the $18.1 billion bad debt write down was less than market expectations of $20 billion.”
The financial services giant also stated that it is set to receive $12.5 billion from foreign investors, including $6.88 billion from Singapore government investment arm GIC.
This is in addition to $7.5 billion gained from a deal with the Abu Dhabi Investment Authority in late November 2007.
Pandit said, “Our financial results this quarter are clearly unacceptable. 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.”
The financial services giant also stated that it is set to receive $12.5 billion from foreign investors, including $6.88 billion from Singapore government investment arm GIC.
This is in addition to $7.5 billion gained from a deal with the Abu Dhabi Investment Authority in late November 2007.
Pandit said, “Our financial results this quarter are clearly unacceptable. 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.”
Headline Links: Citigroup’s fourth-quarter 2007 financials
According to bank CEO Vikram Pandit, the $18.1 billion write down stems from the sub-prime crisis. Singapore governmental investment agency GIC is investing $6.88 billion in the flailing bank. Bond rating firm Standard and Poor’s downgraded the bank to an AA- rating on the grounds that the economy “may be a difficult operating environment for U.S. banks.”
Source: The BBC
Citigroup cut its stock dividends by 41 percent and acquired $12.5 billion in cash from foreign financial entities on Jan. 15. Citigroup also plans to cut over 4,000 jobs.
Source: Forbes
Background: Citigroup finds support abroad
In November, the sudden influx of $7.5 billion in funds from the Abu Dhabi Investment Authority was a boon to embattled Citibank, whose shares plunged over the fourth quarter of 2007. The deal was solidified over Thanksgiving weekend 2007 after a series of phone calls and a last-minute trip by then Citigroup chairman Robert Rubin to Abu Dhabi, which is the richest city in the world according to The New York Times.
Source: The New York Times
Reactions: ‘Tight control’ is everything
Citigroup CEO Vikram Pandit, who just took over the top role after Charles Prince resigned in November 2007, pointed to the bank’s exposure to sub-prime loans as the root cause of the bank’s problems. “Our financial results this quarter are clearly unacceptable. 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,” he said on Jan. 15.
Source: Financial Times
Analysis: Citigroup gets downgraded
Bond rating firm Standard and Poor’s lowered Citigroup's rating to AA- following the reports released on Jan. 15. S&P credit analyst Tanya Azarchs said, “Our downgrade also takes into consideration that Citigroup’s performance could be rocky in 2008 amid prospects for a continued difficult operating environment for U.S. banks.”
Source: The Wall Street Journal
Opinion: ‘Too Big to Succeed?’
The Wall Street Journal is doubtful that Citigroup’s CEO Vikram Pandit has adopted the right strategy with his “global fire sale.” Instead, writes the Journal, he would be well advised to introduce a larger cut on dividends than the 41 percent announced: “We’d have thought that the Federal Reserve and Treasury would want the bank to save every dollar it has as it tries to ride out this financial storm.”
Source: The Wall Street Journal (subscription may be required)
Related Topics: The sub-prime mortgage crisis
This year has shown that it is not just uninformed borrowers with poor credit who are suffering from the sub-prime crisis. The country’s financial giants have lost billions. On Jan. 6, findingDulcinea asked how Wall Street’s mavens came unstuck.
Source: findingDulcinea
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