Our financial results this quarter are clearly unacceptable. Our poor performance was driven primarily by two factors - significant write-downs and losses on our sub-prime direct exposures in fixed income markets, and a large increase in credit costs in our U.S. consumer loan portfolio.
So says Vikram Pandit. And up went the shares in premarket. The implication being that at least the actual $18.1bn writedown announced wasn’t the $24bn writedown widely speculated about.
And the amount in new capital Citi is raising just keeps on rising. Snaps on the wires report a $14.5bn capital raising exercise, some details of which are confirmed elsewhere on Citi’s website.
Of that, the latest has $12.5bn being raised through convertible preferred securities, and $2bn being placed in a public rights issue. From Citi:
The private offering is complete, subject to settlement, and includes a $6.88 billion investment from the Government of Singapore Investment Corporation Pte Ltd (GIC) as well as investments from Capital Research Global Investors; Capital World Investors; the Kuwait Investment Authority; the New Jersey Division of Investment; HRH Prince Alwaleed bin Talal bin Abdulaziz Alsaud; and Sanford I. Weill and The Weill Family Foundation.
Citi is slashing its dividend by 40 per cent to $0.32 per share.
The financial statements do little new to elucidate where the latest writedown has come from; pointing again to CDO exposures as the culprit. The difference between this latest round and Citi’s Q3 writedown, however, is the addition of a $4.3bn writedown on “ABCP/CDO” - that is, exposure to CDOs through Citi’s “liquidity put” on leveraged super senior conduits. A writedown here points to serious trouble at the top end of the CDO world.
At the thick end of the wedge, there’s also concrete evidence of a US downturn impacting the bank. Citi’s results bear out a recessionary warning with a $4.1bn loss on consumer credit business:
U.S. consumer credit costs increased $4.1 billion, comprised of $689 million in higher net credit losses and a net charge of $3.31 billion to increase loan loss reserves. The $3.31 billion net charge compares to a net reserve release of $127 million in the prior-year period. The increase in credit costs primarily reflected a weakening of leading credit indicators, including increased delinquencies on 1st and 2nd mortgages, unsecured personal loans, credit cards, and auto loans. Credit costs increased also due to trends in the U.S. macroeconomic environment, including the housing market downturn, and portfolio growth.
One final question. Where, oh where, in all of this, is there mention of Citi’s $49bn SIV acquisition?
