Tuesday, January 15, 2008

Citigroup Posts Record Loss on $18 Billion Writedown

Citigroup Inc. posted the biggest loss in the bank's 196-year history as surging defaults on home loans forced it to write down the value of subprime-mortgage investments by $18 billion.The fourth-quarter net loss of $9.83 billion, or $1.99 a share, compared with a profit of $5.1 billion, or $1.03, a year earlier, the New York-based bank said in statement. Citigroup reduced its dividend by 41 percent and is selling $14.5 billion of preferred stock to investors including the government of Singapore to shore up depleted capital. Chief Executive Officer Vikram Pandit eliminated 4,200 jobs and plans more cuts.

The above charts tell a sad story. Citi had losses on Subprime, consumer credit, and headcount reductions. Cost of capital is going up with ratchet provisions.

Just as Bernanke Reached a Point of Recognition, so it seems has Citigroup, with a dividend cut and expected massive headcount reductions in the works.

But the market has reached a point of recognition as well. This can be seen in the ratchet provisions. Those provisions are going to make it difficult for Citi to raise more capital down the road. Yet it is clear that more housing related losses are coming, and more consumer credit losses are coming as well. A Credit Card Time Bomb Is Ticking Away.

Like it or not, Citigroup is going to have to start selling off business units to raise more capital. By the time all is said and done, Citigroup is likely to be a mere shadow of its former self. Source