Weeks' worth of speculation about where Citigroup was headed following its heavy involvement in the subprime mortgage meltdown was pretty much confirmed on Tuesday morning when the bank announced a huge $18.1 billion write-down.
As bad as the write-down was, some analysts had predicted even greater carnage, perhaps as high as a $27 billion write-down.
For Citi, the largest U.S. bank based on asset size, this was the first quarterly loss since the bank was created ten years ago, and was mostly tied to losses from subprime lending and other risky debt. The bank cut its quarterly dividend from 0.54 a share to 0.32, a move that will save the firm $1.1 billion per quarter. This may prove especially galling to stockholders as Citigroup had insisted since the meltdown began that the dividend was safe. By the end, as losses widened, hardly anyone was buying the story but Citigroup was still telling it.
The fourth quarter loss of $9.83 billion amounts to $1.99 per share. During
the same quarter one year earlier Citi had a profit of $5.13 or $1.03 per share.
At the same time as it revealed its current financial condition Citigroup also
announced it was raising $14.5 billion from offerings of convertible preferred
securities. A Saudi prince and the government of Singapore
were said to be among the principal buyers. This follows a sale of 4.9 percent
of Citigroup's value to Abu Dhabi for $7.5 billion two months ago.
Also on Tuesday CtW Investment Group, an adviser to union pension funds, threatened action against the Citigroup board to force them to disclose what actions they took in an attempt to stave off the bank's multibillion dollar losses.
According to Reuters, the investment group said that Citi's "failure to manage mortgage-related risk" cost shareholders $126 in share value when the stock tumbled last year. The group threatens to oppose the re-election of Citi's Audit and Risk Management Committee at the company's next annual meeting.
Merrill Lynch & Co is also out fund raising in advance of an expected big loss due to be announced on Thursday. The big U.S. investment bank announced Tuesday that it has received a $6.6 billion cash injection from several sources, mostly with Middle Eastern and Asian home bases. The funds will be raised through the issuance of preferred stock to "long-term investors." Those named include the Kuwait Investment Authority, Mizuho Corporate Bank of Japan, and the Korean Investment Corporation.
The preferred sock will pay a 9 percent dividend and will be convertible to common stock in two years and nine months. Merrill said that the investors will be passive without any control or role in governing the firm. This was the second time in a month that Merrill has gone forth to raise capital. In December the firm sold a stake of around $5 billion to a Singapore state-run holding company and an addition stake of $1.2 billion to a U.S. company, Davis Selected Advisors.
(Just a thought, but might U.S. investors have welcomed the opportunity to receive 9 percent on their money instead of the 4 to 7 percent currently available most places?)
Merrill is expected to announce that it lost $15 billion in the fourth quarter of 2007, stemming almost entirely from bad mortgage investments. It wrote off $8.4 billion in the third quarter.
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