Citi's troubles pile up

Banking giant's new annual report shows staggering losses in just about every area of its business.

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Carol Loomis, senior editor at large

NEW YORK (Fortune) -- To read the new 10K annual-report filings that Citigroup and Wells Fargo each submitted last Friday to the Securities and Exchange Commission is to recall -- with horror -- four days last fall when Citi was slated to take over the fourth largest banking company in the U.S., Wachovia. Then Wells pole-vaulted into the picture and suddenly, as October dawned, it was the West Coast bank, not the East Coast bank, that was to acquire this venerable, though reeling, Southern establishment.

Citi sued after that, claiming it had been robbed and trying to stop the deal. The lawsuit, which seeks $80 billion in damages from Wells, still exists. But after weeks of litigation, Citi settled back to just asking for money and stopped trying to prevent Wells' acquisition of Wachovia, which proceeded to take place on the last day of 2008.

As a taxpayer, you have to say, "Whew!" Wells at least turned a $2.7 billion profit in 2008 and just might be able to cope with Wachovia's mortgage-laden problems. Citi, meanwhile, reported an $18.7 billion loss and says in its filing to the SEC -- repeatedly -- that its future is greatly clouded. That proposed combination of Citi and Wachovia looks like it would have been a disaster beyond all reckoning.

The Treasury has come forth with its newest plan, which is to move from being a Citi preferred stock holder to a common stockholder. The existing common holders will be thereby further marginalized, potentially ending up with only a 24% stake in the company. Even now, they hold a stock selling under $2.

Furthermore, Citi's 10K spells out how many of its businesses -- even the stars -- are troubled. It is in fact remarkable to remember that only a year ago CFO Gary Crittenden spent a part of a FORTUNE interview extolling the profitability of the credit-card business. It may indeed someday return to glory. But Citi's figures show that the business went from close to $5 billion in profits in both 2006 and 2007 to a skinny $166 million in 2008, all of that earned outside the U.S. The underlying problem for credit cards, of course, IS large charges for bills not being paid by cardholders.

The credit card figures are dwarfed by those relating to Citi's institutional clients group, which had a net loss of $20 billion. The big reason for that was write-offs amounting, pretax, to a colossal $32 billion. By far the largest chunk of that total was $14 billion related to subprime-mortgage exposures. But the company also took write-offs for Alt-A mortgages, monoline insurers, highly leveraged loans, auction rate securities, commercial real estate, and structured investment vehicles (SIVs). Wherever there's been trouble, there's been Citi.  To top of page

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