Real Estate Lender Implosion

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Citigroup Posts $2.5 Billion Loss on Fresh Write-Downs


By LOUISE STORY
Published: July 19, 2008

A year into the tight credit market, and the losses keep coming.

Citigroup said Friday morning that it lost $2.5 billion, or 54 cents a share, in the second quarter.

The loss was largely caused by $7.2 billion of write-downs of Citigroup’s investments in mortgages and other loans and by a weakness in the consumer market, which cost Citigroup $4.4 billion in credit losses and $2.5 billion to increase reserves. Analysts had expected a loss of 66 cent a share.

But the chief executive, Vikram Pandit, positioned the $2.5 billion loss as progress. Last quarter, the financial conglomerate lost $5.1 billion.

“We cut our second-quarter losses in half compared to the first quarter,” Mr. Pandit said in a statement. “While there is still much to do, we are encouraged by our progress.”

Citigroup is a barometer of the pain felt in all parts of the financial industry, and the company’s results show the downturn spreading from the credit markets to the real economy. Consumers — stung by high oil and food prices — are falling behind on their mortgages, auto loans and credit cards. Increasingly, that pain is being felt beyond the United States.

The bank has recorded more than $56 billion in credit losses and write-downs in the last four quarters. Citigroup lost more than $17 billion in that time. And its share price has fallen nearly 70 percent since the credit market began to tighten.

In premarket trading, Citigroup shares rose as high as $19.27, after closing Thursday at $17.97.

Mr. Pandit has overseen sweeping asset sales to try to shore up the company’s balance sheet and free the bank of its riskiest assets. Citigroup said on Friday that it sold an additional $99 billion of assets in the quarter, and two-thirds of them were investments made under his predecessor, Charles O. Prince III, who was ousted last fall. The bank is also selling businesses like CitiCapital Diners Club International and its German retail banking unit. Those companies will bring in billions of dollars.

Citigroup’s revenue was $18.7 billion, down 29 percent, mostly because of its write-downs. In addition to mortgage bond deteriorating, Citigroup was hurt by a drop in the credit quality of companies that reinsure its bonds.

Operating expenses were up 9 percent at $15.9 billion, in part because of charges taken while the bank lays off thousands. So far this year, the bank has reduced its work force by 11,000.

Citigroup’s credit card income fell around the world, with North America the hardest hit but growing problems evident elsewhere. Troubled spots included Brazil, India and Mexico where there was a rise in past-due payments and credit costs.

Citigroup continued to be stung by lower securitization revenues, as the pipeline for repackaging loans into bonds remained frozen.

Bank executives said a recovery would take two to three years.

“This isn’t like a sprint. This really is a marathon,” Gary L. Crittenden, Citigroup’s finance chief, said last week.

On Thursday, Merrill Lynch announced a loss of $4.8 billion, surprising even the most pessimistic analysts. The loss was largely caused by another $9.7 billion in write-downs in mortgage investments. Merrill was forced to raise capital by selling assets like its 20 percent stake in Bloomberg, the financial data service mostly owned by Mayor Michael R. Bloomberg of New York.

Also on Thursday, JPMorgan Chase said its quarterly income fell 53 percent from the second quarter last year.

http://www.nytimes.com/2008/07/19/business/19citi.html