Citigroup has huge loss, cuts dividend, raises cash

NEW YORK Tue Jan 15, 2008 3:24pm EST

1 of 2. A Citibank sign outside a branch in Tokyo, November 5, 2007. Citigroup on Tuesday posted its first quarterly loss since its creation in 1998, hurt by write-downs for exposure to subprime mortgages and other risky debt.

Credit: Reuters/Toru Hanai

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NEW YORK (Reuters) - Citigroup Inc said on Tuesday it plans to raise $14.5 billion, slash its dividend and cut 4,200 jobs to shore up its balance sheet after a write-down for mortgages led to a record $9.83 billion quarterly loss.

The capital infusion includes $12.5 billion from investors including Singapore's and Kuwait's governments, former Citigroup Chief Executive Sanford "Sandy" Weill and Saudi Prince Alwaleed bin Talal, the bank's largest individual shareholder.

Adding the much-needed cash may help the largest U.S. bank and new Chief Executive Vikram Pandit survive through the credit market and housing crises. Citigroup announced an $18.1 billion write-down and cut its dividend 41 percent.

"You expected the figures to be shocking," said Simon Maughan, an analyst at MF Global in London. "You cannot say it's definitively over, but you have got to say, 'This is probably the big one.'"

But some analysts had hoped for even larger amounts, and said Citigroup faces a tough road ahead. The bank's shares tumbled $2.18, or 7.5 percent, to $26.88 in afternoon trading on the New York Stock Exchange.

"Citigroup's capital raise coupled with aggressive markdowns by some peers makes us wonder if management couldn't have used more aggressive assumptions to write down this portfolio," Sandler O'Neill & Partners LP analyst Jeff Harte wrote. He rates the bank "hold."

The fourth-quarter loss totaled $1.99 per share, roughly twice as big as analysts expected. It stemmed largely from subprime mortgages, plus a $5.41 billion jump in credit costs, including a $3.85 billion charge to add reserves.

Quarterly revenue fell 70 percent to $7.22 billion. Full-year profit sank 83 percent to $3.62 billion. Standard & Poor's cut the bank's credit rating, and with Fitch Ratings said it has a "negative outlook."

Citigroup, based in New York, cut its quarterly dividend to 32 cents per share from 54 cents, a move that could save it about $4.4 billion a year.

The job cuts, equal to just over 1 percent of Citigroup's work force, reduced earnings by $337 million. They are in addition to 17,000 cuts announced last April.

ALWALEED, WEILL

Citigroup said it is raising $12.5 billion from a private sale of convertible preferred securities.

It said this includes $6.88 billion from Singapore Investment Corp Pte, and investments from the Kuwait Investment Authority, Weill and his family foundation, Alwaleed, the money manager Capital Research & Management, and the state of New Jersey. Kuwait said its investment totaled $3 billion.

Citigroup also plans to sell $2 billion more convertible preferred securities, and other preferred securities. In November, the bank got a $7.5 billion infusion from Abu Dhabi's government, in exchange for a 4.9 percent stake.

"The investment from Sandy Weill is a huge vote of confidence," said William Smith, chief executive of Smith Asset Management in New York. "I'm surprised to see his name."

Alwaleed, in a statement, said his investment reflects his "strong support of Citigroup, and belief in its long-term success and profitability."

Merrill Lynch & Co, which has also suffered billions of dollars of subprime losses, on Tuesday announced a $6.6 billion investment from Kuwait, the Korean Investment Corp and Japan's Mizuho Financial Group Inc. That is on top of a $6.2 billion December infusion from Singapore's Temasek Holdings and money manager Davis Selected Advisers.

On a conference call, Pandit called the Citigroup investments "a vote of confidence" after an "unacceptable" quarter, adding: "There is no doubt that we're in the midst of a very challenging environment."

But unlike predecessor Charles Prince, who became known for making off-the-cuff comments that in retrospect looked unwise or ill-timed, Pandit said: "Given this environment, I'm not going to make any promises."

Pandit also said it is too early to assess whether Citigroup might divest less-important assets.

Through Monday, Citigroup shares had fallen 47 percent in the last year, compared with a 28 percent drop in the Philadelphia KBW Bank Index.

BIG WRITE-DOWN

Mounting credit losses and a failure to consistently boost revenue faster than costs led to Prince's November departure.

Pandit joined Citigroup in July when the bank bought his hedge fund firm, Old Lane Partners LP, for $800 million.

The $18.1 billion write-down includes $17.4 billion related to collateralized debt obligations, and was roughly twice the $8 billion to $11 billion that Citigroup had estimated on November 4.

Citigroup also in December brought billions of dollars of debt-laden structured investment vehicles onto its balance sheet. An attempt to create a "super-SIV" to help sell those securities foundered after a lack of investor demand.

The bank ended the year with a Tier-1 capital ratio of 7.1 percent, down from 7.32 percent on September 30, though above the 6 percent that regulators say indicates a "well-capitalized" bank. The ratio measures a bank's ability to cover losses.

Citigroup said that if it completes the $12.5 billion offering and its planned purchase of Japanese brokerage Nikko Cordial Corp, its Tier-1 ratio would be 8.2 percent.

Chief Financial Officer Gary Crittenden said on the conference call he expected Citigroup to return to its targeted 7.5 percent capital ratio in the second quarter.

He also said the bank at year end had committed to fund $21 billion of leveraged loans for which it had found no buyers, down from $38 billion at the end of September.

(Additional Reporting by David Dolan in Tokyo, Andrew Hurst in Zurich, and Tim McLaughlin and Christian Plumb in New York; Editing by Brian Moss, Leslie Gevirtz)

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