Citi gets $12.5B in cash, cuts dividend as hefty writedowns lead to 4Q loss
NEW YORK -- Citigroup Inc. secured $12.5 billion in much-needed cash and slashed its dividend as a huge drop in the value of its mortgage holdings sent it to its first quarterly loss in 16 years.
The nation's largest bank, which lost $9.83 billion in the last three months of 2007, said Tuesday the value of its mortgage portfolio fell by $18.1 billion and slashed its dividend to boost its cash levels.
The $12.5 billion investment from outside investors included $6.88 billion from the Government of Singapore Investment Corp. for a 4 percent stake. Other investors were Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former chief executive Sanford Weill and his family foundation.
The $12.5 billion adds to the $7.5 billion that Citi got in November from the Abu Dhabi Investment Authority in exchange for a 4.9 percent stake in the company.
Over the past several weeks, Asian funds have been buying up the battered stocks of struggling U.S. banks. Early Tuesday, Merrill Lynch said it will receive a total of $6.6 billion from the Korean Investment Corp., Kuwait Investment Authority and Japan's Mizuho Corporate Bank -- in addition to the $4.4 billion it has already gotten from Singapore's state-run Temasek Holdings.
Citi's moves Tuesday were widely anticipated on Wall Street after months of scrutiny over the bank's ratio of cash to debt. That ratio weakened when Citigroup lost money in mortgage-backed bond instruments called collateralized debt obligations and brought $49 billion in hemorrhaging funds known as structured investment vehicles onto its books.
Citigroup said the 41 percent cut of the quarterly dividend to 32 cents a share -- along with the Asian investments and a stock offering of about $2 billion -- will help boost its Tier 1 capital ratio, a measure of its financial strength.
Financial companies have been the highest dividend-paying sector in the stock market, but many -- including Washington Mutual Inc., National City Corp. and the government-sponsored lenders Freddie Mac and Fannie Mae -- have pared those payouts in recent months.
Tuesday's announcements from Citigroup fall short of many shareholders' wish for the bank to cut its 320,000-member work force by more than the 17,000 announced in the spring and sell off some of its units. But the newly named chief executive Vikram Pandit said after winning the CEO job in December that he would take "an objective and dispassionate review of all the businesses."
Pandit, calling Citi's fourth-quarter results "clearly unacceptable," said in a statement Tuesday that "in an uncertain environment, these actions put us on our 'front foot,' focused on capturing opportunities that earn attractive returns for our shareholders."
He said Citi would continue to sell off "non-core" assets. The bank has already sold shares in Redecard, a card business in Latin America, and an ownership interest in a unit of the Japanese brokerage Nikko Cordial it bought last year.
Citigroup shares fell 85 cents, or 2.9 percent, to $28.21 in premarket trading from a $29.06 close Monday.
Citi's $18.1 billion writedown was significantly wider than the $6 billion writedown it took in the third quarter last year, and bigger than the $8 billion to $11 billion it guessed in October that it would take for the fourth quarter.
Citi said as of Dec. 31, it had a total of $37.3 billion in direct subprime mortgage exposure, down from $54.6 billion three months prior.
The bank also boosted loan-loss reserves by $4.1 billion, foreseeing further problems in its consumer businesses as deflated home prices, high energy and food costs, and slowly rising unemployment weigh on people's ability to make their loan payments.