By Jennifer Yousfi
Beleaguered banking giant Citigroup Inc. (C) yesterday (Tuesday) posted its biggest-ever loss, slashed its dividend 41% and said it had raised $14.5 billion to bolster its sagging balance sheet.
The revelations sent Citi's shares down $2.12 each, or 7.30%, to $26.94 in trading Tuesday. The announcements were part of the financial giant's fourth-quarter financial report.
In related news, rival investment bank Merrill Lynch & Co. Inc. (MER) – also a victim of the subprime mortgage crisis – yesterday announced it was receiving a $6.6 billion capital infusion of its own.
Citi's Fourth Quarter: No Profits, More Pain
For the three months ended Dec. 31, Citigroup reported a loss of $9.83 billion, or $1.99 per share, compared to net income of $5.13 billion, or $1.03 per share, for the comparable quarter in 2006. The results included subprime-related write-downs of $18.1 billion – which are in addition to tens of billions in write-downs the bank has already recorded.
Citigroup also announced a dividend cut of 41% – breaking a promise the interim management team made.
"Our financial results this quarter are clearly unacceptable," newly appointed Chief Executive Officer a company statement.said in
Pandit, 50, a former Morgan Stanley (MS) executive, took over duties in mid-December from , acting CEO after the Nov. 4 ouster of former Chief Executive Officer Charles O. "Chuck" Prince III, 57. Prince left in large part due to spiraling losses from Citi's credit-related businesses and the growing subprime mortgage crisis. Bischoff took over chairman duties.
While serving as interim chairman, Robert E. Rubin, former Treasury Secretary under President Bill Clinton, promised shareholders the bank would not slash its dividend. But with Citi clearly still hurting for capital, that's a promise the bank can no longer keep.
Citi Turn to "Cash Barons" for a Repeat Bail-Out
Saudi Prince Alwaleed bid Talal – a well-known Contrarian investor who already holds a 3.6% stake in Citi – boosted his stake in the bank to the 4.9% maximum permitted without triggering a U.S. regulatory review, Bloomberg News reported.
"The fresh capital signals the Prince's continued support of Citi and confidence in its future," P.J. Shoucair, a Riyadh-based investment adviser told Bloomberg News in a phone interview.
Alwaleed bailed out Citigroup-predecessor Citicorp Inc., with a $590 million investment in 1991. That initial investment made Alwaleed Citi's largest individual shareholder and is now valued at approximately $6 billion.
In addition to the capital infusion from Prince Alwaleed, Citi also will receive cash investments from sovereign wealth funds in Singapore and Kuwait, as well as from former Chairman Sanford "Sandy" Weill.
Citigroup already received a $7.5 billion investment from Abu Dhabi Investment Authority (ADIA), the United Arab Emirate's state-controlled sovereign wealth fund, in November. Under the terms of the deal, ADIA's stake will not breach 4.9% and will have no managerial oversight.
In a related development, sector rival Merrill Lynch will receive a $6.6 billion investment from a combination of sources: Tokyo-based Mizuho Financial Group Inc., the Kuwait Investment Authority and the Korean Investment Corp. Merrill is scheduled to announce fourth-quarter earnings Thursday and is expected to take another $15 billion in write-downs.
Merrill received a combined $6.2 billion investment from Singapore sovereign wealth fund, Temasek Holdings Pte. Ltd., and private equity firm, Davis Selected Advisors LP in December.
News and Related Story Links:
Citigroup, Merrill Lynch Get $21 Billion From Outside Investors
Citigroup swings to loss on $18 billion write-down
Citigroup: Why This Turnaround Play Has Legs – Big Ones