Citigroup reports record $9.8 billion loss

January 16, 2008|By New York Times News Service

NEW YORK -- Citigroup, the nation's largest bank, reported a staggering fourth-quarter loss of $9.83 billion yesterday and issued a sobering forecast that the housing market and the broader economy still had not bottomed out.

To shore up their finances, Citigroup and Merrill Lynch & Co., which has also been rocked by the subprime mortgage debacle, both were forced again to go hat in hand for cash infusions from investors in the United States, Asia and the Middle East, for a combined total of nearly $19.1 billion.

Growing pessimism led to another sharp sell-off in stocks, which fell about 2 percent for the day and are now down about 6 percent since the beginning of 2008, the third- worst start for a year since 1926.

More bad news is coming, with Merrill Lynch expected to report sizable losses this week and major financial institutions like Bank of America retreating from their investment banking business.

These moves add to concerns that financial institutions will be forced to pull back on lending at a time the economy most needs access to credit to help cushion against a downturn.

"It looks like the financial sector as a whole will see a big decline in profits, and the only time this happened in the last 100 years - financial firms' going from making good profits to negative profits - was the Depression in the 1930s," said Richard Sylla, a professor of financial history at New York University. "I don't think it will be as bad this time; the Federal Reserve is fighting the problem as hard as it can."

Citigroup's record loss was caused by write-downs of $23.2 billion from soured mortgage-related securities and reserves for current and future bad loans. Responding to a string of dismal quarters, the bank said it would also lay off another 4,000 workers, on top of announced reductions of 17,000 employees, and cut its dividend to conserve $4.4 billion in cash annually.

The company could not say whether any of its 6,000 workers in Maryland would be affected by the latest job cuts.

CitiFinancial, the bank's consumer finance arm, employs about 1,000 at its headquarters in downtown Baltimore.

In addition, the company employs 2,400 at its credit-card processing center in Hagerstown. The rest of Citigroup's Maryland work force is spread among Smith Barney brokerage offices and in investment banking.

Citigroup, which earlier raised $7.5 billion from the Abu Dhabi Investment Authority to boost its capital, said it had raised an additional $12.5 billion from a number of investors, including the Singapore Government Investment Corp. and Citigroup's former chairman and chief executive, Sanford I. Weill. Citigroup will also offer public investors about $2 billion of newly issued debt securities, a portion of which will be convertible into stock.

At the same time, Merrill Lynch announced it had issued $6.6 billion in preferred stock to the Kuwait Investment Authority, the Korean Investment Corp., Mizhuo Financial Group, a Japanese bank and other investors, including the New Jersey pension fund and a Saudi investment fund. That is in addition to the $4.4 billion it raised in December from Temasek Holdings of Singapore.

Citigroup, which has a large consumer lending business, sounded some warning bells yesterday that the U.S. economy was turning. The bank reported sharp upticks in losses stemming from souring auto, home and credit card loans, with problems coming from the same areas being hit by real estate.

Two-thirds of the credit card losses, for example, occurred in just five states - California, Florida, Illinois, Arizona and Michigan - that have been among those hit hardest by the housing downturn. Gary L. Crittenden, the company's chief financial officer, acknowledged the bank's losses appeared to be accelerating month after month.

The banks' need for additional financing suggests that housing-related problems will persist. Citigroup executives expect house prices around the country will fall, on average, another 6.5 percent to 7 percent.

Yesterday's fourth-quarter results sent the company's stock tumbling 7.3 percent, to $26.94. It has now fallen about 50 percent in the past year.

The write-downs did not assuage fears in the market that more bad news was coming. "I think the financials will continue to need to raise more money," said Barry L. Ritholtz, chief executive of Fusion IQ, a quantitative research and asset management firm.

The fear is that financial institutions will continue to take large write-downs as bad loans mount, while consumers, facing higher energy costs, falling house prices and a bleak outlook for job growth, will rein in spending even more than they already have.

Citigroup set aside $4.1 billion for future bad loans, and Crittenden said the bank is tightening lending standards as credit card defaults increase, a move that could make it harder for consumers to continue the spending that has helped fuel growth in recent years.

Sun reporter Paul Adams contributed to this article.

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