Citigroup shares drop on mounting woes

By Jonathan Stempel and Dan Wilchins

NEW YORK (Reuters) - Citigroup Inc's problems deepened on Monday as it was unable to assure investors that a potential $11 billion write-down for subprime mortgages won't grow, and its nearly pristine credit ratings were downgraded.

The largest U.S. bank also reduced its previously reported third-quarter profit because of worsening credit markets, which it expects will reduce future cash flow. Moody's Investors Service and Fitch Ratings lowered Citigroup's debt ratings.

Its stock hit a new 4-1/2-year low.

"There's no way I think anyone can give you an assurance of how things are going to move," Chief Financial Officer Gary Crittenden said on a conference call. "We've taken what we think is a reasonable stab."

Citigroup's struggles came as it faced a leadership void, following the resignation of Chairman and Chief Executive Charles Prince on Sunday.

Prince left after a four-year tenure during which the bank's stock fell 17 percent amid criticism that Citigroup had grown unwieldy and lacked direction. Some investors want the bank, which has $2.35 trillion in assets, to be broken up.

Former U.S. Treasury Secretary Robert Rubin, who led the bank's executive committee, was named chairman. Sir Win Bischoff, head of the European business, became acting chief executive.

Citigroup shares closed down $1.83, or 5 percent, at $35.90 on Monday on the New York Stock Exchange.

News of the expected write-down of $8 billion to $11 billion, equal to $5 billion to $7 billion after taxes, helped drag down shares of rivals Bank of America Corp, Goldman Sachs Group Inc, Merrill Lynch & Co Inc and Morgan Stanley.

Investors are worried that write-downs for subprime mortgages and other debt might not be isolated.

On October 15, Citigroup wrote off just $1.56 billion for its subprime portfolio for the third quarter, part of an overall $6.5 billion write-down. The bigger write-down reflects problems discovered since then.

Analysts said Merrill Lynch may add to its own announced $8.4 billion write-down. Merrill ousted its chief executive, Stanley O'Neal, last Tuesday.

"It shows the clumsiness of pricing mechanisms across Wall Street," said Michael Holland, a money manager and founder of Holland & Co in New York. He said it is difficult to value Citigroup "until the dust settles."

CREDIT DOWNGRADES

Moody's cut Citigroup's credit rating one notch to "Aa2," its third-highest rating, from "Aa1."