The stunning net loss of $9.83 billion reported for the fourth quarter by Citigroup Inc. (Citi) January 15, after writing down $18.1 billion in subprime and consumer credit exposures, underscores the depth and breadth of the credit and mortgage crisis. Although for the full year 2007 the corporation made a net $3.6 billion, that full year result was down 83% from the net $21.5 billion Citi made for 2006. After the $18.1 billion write down, Citi still has total “net CDO Super Senior exposures and gross Lending & Structuring exposures” of $37.3 billion as of December 31, down from $54.6 billion on September 30.
Citi separately announced several steps it is taking to shore up its capital base, which include cutting its quarterly dividend to $0.32 per share (or $1.28 annually), from $0.54 per share (or $2.16 annually); a public offering of $2 billion convertible securities, plus “additional” preferred shares; a private placement of $12.5 billion in convertible preferred securities; and the corporation says it will continue selling “non-core assets,” according to the announcement.
Of the $12.5 billion private placement of convertible preferred securities, which carry a 7% dividend, $6.88 billion was sold to a group of investors that includes: “the Government of Singapore Investment Corporation Pte Ltd,” and “Capital Research Global Investors; Capital World Investors; the Kuwait Investment Authority; the New Jersey Division of Investment; HRH Prince Alwaleed bin Talal bin Abdulaziz Alsaud; and Sanford I. Weill and The Weill Family Foundation.”
The fourth quarter write down comes on top of third-quarter write downs and losses of $3.8 billion, which Citi announced October 15, related to “highly leveraged finance commitments,” and the “value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation (“CDO”) securitizations, CDO positions, and leveraged loans warehoused for future collateralized loan obligation (“CLO”) securitizations” and losses in “fixed income credit trading,” which led to the sudden departure of Citi’s former Chairman and CEO Charles Prince, announced on November 4.
“Our financial results this quarter are clearly unacceptable,” Citi’s new chief executive officer, Vikram Pandit, says in the announcement. “Our poor performance was driven primarily by two factors–significant write-downs and losses on our sub-prime direct exposures in fixed income markets, and a large increase in credit costs in our U.S. consumer loan portfolio.” He added, “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.” Citi noted in its announcement for the fourth quarter 18% higher operating expenses partly related to “approximately 4,200 net headcount reductions.”
Citi’s Results Statement is available here.
Citi’s Key Actions announcement is available here.