From Staff Reports
Citigroup Inc. (C) took a trifecta of blows yesterday (Monday) – sending the shares spinning downward 4.85%.
Citigroup yesterday said:
- It was unable to assure investors that a possible $11 billion write-down for subprime mortgages won't grow.
- Reduced a previously reported third-quarter profit.
- And watched as its credit rating was downgraded.
And that's after Sunday night's "retirement" of embattled Chief Executive Officer Charles Prince III. Also on Sunday Citigroup announced that Robert E. Rubin, the former Treasury Secretary under President Bill Clinton, would be Prince's interim replacement as chairman.
On a related note (and happier one for Citigroup), shares of Citigroup's stock rose 5% during the company's debut on the Tokyo Stock Exchange,. But such good news is hardly enough to take the spotlight from Citigroup's troubles.
"There's no way I think anyone can give you an assurance of how things are going to move," Chief Financial Officer Gary Crittenden told investors on a conference call. "We've taken what we think is a reasonable stab."
Facing a possible $30 billion capital shortfall, the company may be forced to cut its dividend or sell assets, said banking analysts Meredith A. Whitney and Carla Krawiec of CIBC World Markets, in a report released last Wednesday night. If Citigroup makes either move, it's likely that many shareholders would head for the nearest exit sign, but it looks like many are out the door already.
Citigroup posted a 57% drop in third-quarter earnings. Compounding the problem was where those losses came from: Citi's fixed-income business, usually a strong suit for the banking-and-finance concern, was a big part of the earnings decline – and included a loss of $1.3 billion related to problems with mortgage-backed securities.
Trying to regain footing after the credit rout slammed lenders around the world, Citigroup, Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM) agreed to start a fund that would enhance the liquidity of the asset-backed commercial paper (ABCP) market, as well as medium-term notes issued by structured investment vehicles (SIVs). The plan has met with substantial controversy, but the goal of the fund would be to pump liquidity back into the commercial paper markets. Unfortunately, other banks haven't warmed up to the idea because they don't trust the assets backing the loans.
A sale of Citigroup assets only legitimizes those fears.
Subprime mortgage losses and the ensuing credit crunch have reduced Citigroup's shares by more than 36% year-to-date.
The shares closed yesterday at $35.90, down $1.83 each.
News and Related Story Links:
- New York Times:
Analyst Raises Doubts About Citigroup Dividend .
- Citigroup Press Release:
Robert E. Rubin to Serve as Chairman of the Board of Citi.
- Money Morning:
O'Neal Finally Out at Merrill Lynch.
- Money Morning:
Banks Create Fund to Help to Fight Woeful Credit Market.
- Financial News:
Banks Steer Clear of Super-Fund.