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January 16, 2008 • By Leslie A. Pappas
The News Journal
Posting the largest quarterly loss in the bank's 196-year history, Citigroup Inc. said Tuesday it would cut its dividend, seek billions in foreign capital and lay off 4,200 more people in a full-throttle effort to revive its slumping business. The bank's dismal earnings report, the first of many scheduled this week, is another sign of the darkening national economic picture and further stokes fears of recession.
"Every single quarter we have to get more and more productive," Crittenden said during the conference call. The recent cuts, which the company is not breaking out geographically, will be one in "a continual stream of efforts that we're making to reduce head count."
Citigroup lost $9.83 billion in the fourth quarter, or $1.99 per share, largely the result of $18.1 billion in write-downs related to subprime mortgages and a $4.1 billion increase in credit costs for consumer loans. That brought earnings for the fiscal year down 83 percent to $3.6 billion, down from $21.5 billion in 2006.
"Our financial results this quarter are clearly unacceptable," said Chief Executive Officer Vikram Pandit in a conference call Tuesday morning. Pandit replaced Charles Prince in December. The credit problems and subprime write-downs "completely overwhelmed record performances in many of our businesses," Pandit said. The company slashed its dividend by 22 cents, or 41 percent, to 32 cents per share.
One of the few bright spots in the report was Citi's global transaction services, a division in the bank's Markets and Banking segment that employs the bulk of Delaware's 1,880 Citi workers.
Transaction services, the back-office operations that generate business from worldwide money wires, market trading, investment services and fund management, saw a record 44 percent growth in revenue for the quarter, bringing the division's net income up 76 percent to a record $664 million. The bank attributed the growth to higher business volume and the $1.45 billion acquisition in August of The Bisys Group, a hedge fund and mutual fund services company.
Citi also saw gains in revenues from its global wealth management division (up 27 percent) and global banking (up 21 percent.) But the strong performance from the company's service, fee-based and global consumer businesses wasn't enough to offset the billions the bank lost in all types of U.S. loans.
Analysts and investors had expected bad news relating to subprime mortgages, but they were startled to see Citi's loans souring in areas including credit cards, auto loans and even commercial lending, said Gerard Cassidy, an analyst at RBC Capital Markets.
"The breadth of deterioration in credit across different product lines was troubling," Cassidy said. "It's across the board. That's the part that has everybody saying, 'Wow!' "
Citigroup shares fell $2.12, or 7.30 percent, to close at $26.94. The markets were rattled — the Dow Jones industrial average fell 277.04 points, or 2.17 percent, to close at 12,501.11.
More bad news likely
Citi's earnings kick off what will likely be a difficult year for the nation's financial companies as they scavenge for loose currency in markets that are increasingly wary of doling out cash. Many banks have warned that their upcoming earnings reports will be worse than previously thought.
Citi said Tuesday it would offer $2 billion in public securities in an attempt to raise capital, and would seek a $12.5 billion infusion from several foreign investors, including the Government of Singapore Investment Corp., the Kuwait Investment Authority, Capital World Investors and shareholder Prince Alwaleed bin Talal of Saudi Arabia.
It's not the only bank seeking cash overseas: Merrill Lynch & Co. said Tuesday it is getting a fresh cash investment of $6.6 billion from foreign investors including the Korean Investment Corp., Kuwait Investment Authority and Japan's Mizuho Corporate Bank.
Citi also isn't the only bank considering job cuts as a way to boost the bottom line. Bank of America said Tuesday it planned to cut 650 positions in its global investment bank.
The 4,200 cuts Citi announced Tuesday (on top of the 17,000 it announced last spring) would probably not be the last, Chief Financial Officer Gary Crittenden said Tuesday.
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