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Citigroup (C)
Citigroup's $2.5 Billion Dollar Loss Calms Investors
Investors on Wall Street sighed in relief as the news was released that the biggest US bank, Citigroup, posted a loss of $2.5 billion dollars. While Citigroup, like most banks, has been plagued by surging loan defaults, credit losses, and a slumping economy, the loss was over a billion dollars less than analysts had predicted. This is the third straight quarter that Citigroup has posted losses. However upon this breaking news, Citi's shares climbed 90 cents, or 5.5 percent, to $17.34 in premarket trading and helped boost the broader market. Is this news a sign that Citigroup is back on its feet? Are the big banks out of the woods?
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Citigroup's latest report includes $7.2 billion in credit costs, which include $4.4 billion in losses. These numbers are more than double last year's $2 billion charge to boost loan-loss reserves, mostly related to residential real estate in North America. Further losses came from consumer-banking business, Citi's largest, as revenue rose 1 percent, with average loans and deposits up 9 percent and 8 percent, respectively. But investment sales dropped 20 percent. Net credit losses in North America nearly tripled to 2.33 percent from 0.87 percent. The bank slashed its work force by 6,000 this quarter which brings its total job cuts to 11,000 for 2008.
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While these losses may seem grim, Citigroup is the third major U.S. bank to beat analysts' predictions this week, after JPMorgan Chase & Co (JPM: Charts, News, Offers) and Wells Fargo & Co (WFC: Charts, News, Offers) also posted lower-than-expected losses for the quarter. These increases indicate the market may be deciding that the future of the sickly financial sector may not be as dismal as they feared. Citigroup's CEO said, "While there is still much to do, we are encouraged by our progress in delivering on our commitment to the re-engineering efforts." Amid the fallout from the credit crunch, Citi has raised about $39 billion in capital since November.
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Lower-than-expected losses may be a sign that things could be getting better for Citigroup however its shares have tumbled 65 percent over the past year and the company recently hit their lowest point since its merger with Travelers in October 1998. Citigroup has not been profitable for three straight quarters, losing a collective $17.4 billion after writing down its assets by nearly $46 billion. There are some bright prospects on the horizon for Citigroup. It decided to sell its lucrative German retail operations to a French bank, Credit Mutuel, for $7.7 billion. This cash transaction is expected to generate a post-tax gain of about $4 billion by the end of the year. The company says that the sale will free up capital and will advance Citigroup's Tier 1 ratio by another 0.6 percentage points. As of 11 am EST, the stock is up 9 percent.
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