Citigroup's $10 billion loss is worst ever

Writedown: $18.1 billion. Dividend cut: 41%. Job cuts: In the works. Chief Executive Vikram Pandit says financial giant's performance was 'unacceptable.'

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By David Ellis, CNNMoney.com staff writer

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Besides announcing a quarterly loss approaching $10 billion, Citigroup slashed its dividend by 41 percent and took an $18.1 billion writedown on subprime-related assets.
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NEW YORK (CNNMoney.com) -- Citigroup Inc. stunned Wall Street Tuesday by reporting that it had suffered a $10 billion quarterly loss - the worst ever in its storied history.

The financial giant also announced a writedown of $18.1 billion related to soured mortgage investments and major cost-cutting initiatives that included a 41 percent cut to its dividend and plans to reduce in its payroll. At the same time, it said it was receiving a $12.5 billion infusion from investors in Kuwait, Singapore and the state of New Jersey.

Wall Street was disappointed by the news as Citigroup (C, Fortune 500) shares tumbled 7 percent in afternoon trade on the New York Stock Exchange.

The company recorded an eye-popping net loss of $9.83 billion, or $1.99 a share, in the fourth quarter - the worst quarterly loss ever recorded in the 196-year-history of the firm and its predecessors.

It also marked the first quarterly loss since Citicorp and Travelers Group merged to form Citigroup in 1998. Only a year ago, Citigroup reported a profit of $5.13 billion, or $1.03 per share.

Citi's top line took a big hit. The company reported revenue of $7.2 billion for the quarter, down 70 percent from $23.8 billion a year earlier.

The results were much worse than forecast. Analysts had expected the company to report a loss of $1 a share on revenue of $10.64 billion, according to analysts surveyed by earnings tracker Thomson Financial.

"It's very clear that Citigroup's fourth-quarter results are unacceptable," Citigroup CEO Vikram Pandit said in a conference call Tuesday morning.

Pandit, who arrived in office a little over a month ago, blamed the company's grim results on subprime exposure in the company's fixed-income business, a surge in credit costs in its U.S. consumer loan portfolio and the staggering $18.1 billion writedown on its subprime-related exposure.

In November, when Citigroup announced the departure of former CEO Charles Prince, the company warned that it could writedown as much as $11 billion. Recent reports had estimated that Citi could writedown as much as $24 billion during the quarter.

Also hit hard was the company's consumer loan portfolio, which suffered a separate $4.1 billion hit due to higher credit costs.

The news also prompted Standard & Poor's to cut its rating on Citigroup's credit Tuesday, lowering it to "AA-" from "AA".

Citigroup also warned of tough credit conditions going forward, particularly at the consumer level, which could worsen especially if the economy tips into a recession.

Citigroup's Chief Financial Officer Gary Crittenden noted that while the company will face tough comparisons from a year ago when it reports first and second quarter results of 2008, key segments of the company including its global wealth management and international business should continue to generate strong results.

Big changes

Citi also announced Tuesday that it would reduce its quarterly dividend to 32 cents from 54 cents a share, making it the latest financial institution to reduce its dividend payout.

While cutting the dividend hits shareholders directly, the move is expected to save the company more than $4 billion annually.

Crittenden defended the decision, arguing that it made sense given the uncertainty going forward and capital needed for future growth.

"We tried to make a long-term decision," said Crittenden.

The New York-based bank said it raised $12.5 billion in capital from outside investors both domestically and abroad. Two months ago, Citigroup sold a stake to the Abu Dhabi state investment fund in exchange for a $7.5 billion cash infusion.

In addition, Citigroup said it would raise an additional $2 billion through the public sale of convertible preferred securities.

Some investors cheered the capital-raising moves including Bill Fitzpatrick, an equity analyst at Optique Capital Management, which owns shares of Citigroup.

"The dividend [cut] was a good idea and a cash infusion was necessary," said Fitzpatrick. "Banks can't grow if they are not well capitalized."

Citigroup said its so-called tier 1 capital ratio - a key measure of its ability to absorb losses - stood at 7.1 percent during the quarter, below the company's internal target of 7.5 percent. Crittenden said he expected that the company would return to that level by the second quarter of 2008, helped by Tuesday's announcements.

Citigroup also said it was eliminating 4,200 jobs from the company's 375,000 global workforce. That's in addition to the 17,000 job cuts the company announced last spring.

Pandit said the company would take a charge in the quarter as a result - he called it a "down payment" - as it reviews staffing levels at its myriad business units. He did not, however, provide any insight about how many more job cuts could be forthcoming.

The company also added that it plans to sell of some of its non-core assets, which could include any number of businesses in the more than 100 countries where Citigroup has a foothold. Most recently the company trimmed its stake in Brazilian credit card company Redecard SA.

"We are working as hard as we can to lead with our front foot and capture opportunities for our shareholders," said Pandit.

He declined to offer much insight into what direction he was leading the firm, but said he was focused on strengthening the company's balance sheet, managing its risk and cutting expenses.

Pandit, who has faced plenty of skepticism about his ability to lead a firm as large and diverse as Citigroup, earned top marks from some analysts including Bear Stearns' David Hilder.

"We believe newly appointed CEO Vikram Pandit has been remarkably effective in his first five weeks on the job, both in assessing the bank's major risks, making those positions more transparent and beginning to shrink both the balance sheet and the workforce," Hilder wrote in a note Tuesday.

Citigroup kicks off what will be a particularly busy week for the financial sector. Merrill Lynch, JPMorgan Chase (JPM, Fortune 500) and Washington Mutual (WM, Fortune 500) are all slated to report quarterly results this week.

Citigroup's stock endured one of its worst annual performances on record last year and was the worst performing Dow component in 2007. Its shares finished the year down 47 percent. To top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.