Citigroup loses $10 billion
NEW YORK -- Bad bets on mortgages led to a $10 billion loss for Citigroup Inc. in the final quarter of last year, the largest in its 196-year history. As a new wave of weak economic data intensified fears of a recession, the nation's biggest bank also cut jobs, slashed its dividend and turned to foreign investors for an infusion of cash.
The biggest hit came from a $18.1 billion write-down in the value of its investment portfolio. But the bank also set aside $4 billion on Tuesday to cover anticipated losses on loans to U.S. consumers, a sign deflated home prices, high energy and food costs, and rising unemployment are making it difficult for many customers to keep up with their payments.
The news sent Citigroup's shares skidding 7 percent, wiping away almost $10 billion in market value on top of the $125 billion the shares already have lost over the past year. Citigroup's tumbling shares helped send the Dow Jones industrial average plunging more than 230 points Tuesday when the government reported retail sales fell in December and inventories of unsold goods piled up at manufacturers and wholesalers, signs consumers are pulling back.
Retail sales fell by 0.4 percent last month, the Commerce Department reported Tuesday. Sales of clothing, sporting goods, and building supplies all fell.
Also Tuesday, the Labor Department said wholesale inflation, which had shot up in November by 3.2 percent, the largest amount in 34 years, dipped by 0.1 percent in December, reflecting a drop in energy costs. However, for all of 2007, wholesale prices rose by 6.3 percent, the biggest annual increase in 26 years. A report on consumer prices will be released today.
Citigroup's chief financial officer Gary Crittenden startled analysts on a conference call by saying the bank doesn't expect the housing industry to stabilize soon. He predicted already slumping U.S. home prices could fall 7 percent further this year and by a similar amount in 2009.
That led some analysts to predict more write-downs could come this year. New Chief Executive Vikram Pandit acknowledged as much, saying "the environment continues to be uncertain," and the company's results going forward "will definitely be influenced by the economy."
Besides the housing slump, economists are growing more worried about the snowball effects of a shaky job market, which has been exacerbated by the loss of tens of thousands of jobs in the mortgage and housing industries.
Citigroup added to that total Tuesday, saying it cut 4,200 jobs in the fourth quarter, separate from the 17,000 layoffs announced in the spring. Crittenden said Citigroup will cut more jobs, too. The bulk of the cuts have and will continue to be traders and investors in markets and banking, the main source of the bank's losses.
As for the dividend cut, the 41 percent reduction in quarterly payouts to 32 cents a share will save $5 billion a year but deprive cash from shareholders.
The losses also forced Citigroup to seek fresh capital again. The $12.5 billion it announced Tuesday includes $6.9 billion from Government of Singapore Investment Corp. for a 4 percent stake. Other investors are 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.
Those convertible preferred shares, plus $7.5 billion that Citi got in November from the Abu Dhabi Investment Authority in exchange for a 4.9 percent stake, come at a hefty price: $1.7 billion a year in new dividends it must pay for the high-yielding stakes. The bank also is seeking to raise another $2 billion in preferred shares.