By BusinessWeek.com, Associated Press, and Action Economics staff
That giant sigh you may have heard Apr. 18 could have been Wall Street's collective exhalation of relief at a smaller-than-expected loss from Citigroup (C). The financial giant said Friday it lost $5.1 billion during the first quarter as poor bets on mortgages and leveraged loans lopped billions of dollars from its investment portfolio. Writedowns related to mortgages and turmoil in the credit markets reached about $12 billion.
The most recent quarterly shortfall at the nation's biggest bank by assets is not as massive as the nearly $10 billion loss it suffered in the fourth quarter of 2007.
Investor Reaction
Shares of Citigroup rose in pre-market trading Apr. 18 and helped pull other stock futures higher, as many investors had been bracing for even more dismal results.
The U.S. dollar extended gains after Citigroup reported results. European equity indexes moved modestly higher as the market anticipated a relief rally at the Wall Street open.
Treasuries extended losses amid strong gains in equities after the Citi news and strong results from Google (GOOG) announced after the close of trading Apr. 17 (BusinessWeek.com, 4/17/08).
More Subprime Fallout
Citigroup's loss of $1.02 per share is in sharp contrast to its profit of $5 billion, or $1.01 per share, in the first three months of 2007. And analysts, on average, had expected the New York-based bank to lose 95¢ per share, according to a Thomson Financial (TOC) survey.
Citigroup said that before taxes, it took $6 billion in writedowns and credit costs on exposure to subprime mortgages, $3.1 billion in writedowns on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5 billion related to bond insurer exposure, $1.5 billion in writedowns on auction-rate securities, and a $3.1 billion rise in credit costs for consumers around the world.
Citigroup wrote down about $18 billion in the fourth quarter of last year, and about $6 billion in the third quarter.
New Leadership
The bank, which replaced its former chief executive, Chuck Prince, with the Morgan Stanley (MS) investment banking veteran Vikram Pandit late last year, has been scrambling for cash.
In December and January, Citi raised more than $30 billion through sales of assets and stock to outside investors, some of which have been funds run by Asian and Middle Eastern governments. It also has been cutting costs by eliminating jobs—4,200 job cuts were announced in January—and has been reorganizing the bank's various businesses.
"We are taking the necessary steps to make Citi more efficient while fostering a culture of accountability and teamwork," Pandit said in a statement. "As we move into the second quarter and beyond, we will continue to divest non-strategic assets and allocate capital to the products and regions that will drive increased revenues, enhance the value of our franchise, and ultimately, maximize shareholder value."
The new chief has rejected calls for an outright breakup of the firm. "You couldn't design a better footprint or get a better set of assets if you had to build a bank from scratch," Pandit told BusinessWeek earlier this week (BusinessWeek, 4/17/08). "This is clearly the right model."