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Market Bullish on Citigroup Despite Big Quarterly Loss

Citigroupposted a $5.11 billion quarterly loss Friday and said it will cut another 9,000 jobs after suffering billions of dollars of write-downs tied to mortgages, other debt and a slumping economy.

Citigroup Center
AP
Citigroup Center

The loss was larger than expected and reflected more than $16 billion of write-downs and credit-related costs at the largest U.S. bank.

Still, shares rose $1.60, or 6.7 percent, to $25.63 in morning trading on the New York Stock Exchange. Investors took comfort that the bank and its new chief executive, Vikram Pandit, are taking steps to get past credit problems, drive down expenses, and restore luster to a stock down by about half over the last year.

"It's a cathartic quarter," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Citigroup's net loss totaled $1.02 per share, and compared with a year-earlier profit of $5.01 billion, or $1.01 per share. Revenue fell 48 percent to $13.22 billion.

Analysts, on average, expected a loss of 96 cents per share on revenue of $14.35 billion, according to Reuters Estimates.

"We're not happy with our financial results this quarter," Pandit said on a conference call. Nevertheless, he said his confidence in Citigroup's future is "extremely high."

Citigroup has announced 13,200 job cuts this year, including 4,200 disclosed in January. It said about 1,300 people in its investment banking unit lost jobs in the first quarter.

The bank said the 9,000 additional cuts will take place in the next year, and include about 7,000 in consumer banking. Citigroup said it ended March with about 369,000 employees.

Shaking The Trees

Pandit is trying to focus on stronger businesses and slash exposure to risky assets after years of poor expense and risk management left New York-based Citigroup bearing the full brunt of the global credit market crisis.

Expenses fell 2 percent from the fourth quarter. In the last two weeks, Citigroup said it will sell its Diners Club International credit card network and most of its North American commercial lending and leasing business.

On Thursday night, the bank sold $12 billion of leveraged loans, which are used to fund corporate buyouts, Chief Financial Officer Gary Crittenden said in an interview. The recent pace of asset sales will likely continue, he said.

"Vikram Pandit was always going to shake the trees and get every skeleton out of the cupboard imaginable, which is what he's done," said David Buik, market strategist at Cantor Index in London.

Citigroup has lost close to $15 billion in the last two quarters, and suffered more than $46 billion in write-downs and increased credit costs since the middle of 2007.

Write-downs in the first quarter included $6 billion tied to subprime mortgages, $3.1 billion for leveraged loans, $1.5 billion for bond insurer exposure, $1.5 billion for auction-rate securities, $1 billion for below-prime "Alt-A" mortgages, and $600 million for commercial real estate.

Citigroup said it also incurred $3.1 billion of credit costs related to consumer lending.

The bank has cut its dividend and raised more than $30 billion of capital, helping to boost its Tier-1 capital ratio to 7.7 percent from 7.12 percent at year end.

That ratio measures the ability to cover losses. Regulators say 6 percent reflects a "well capitalized" bank.

Book value per share, measuring assets minus liabilities, fell to $20.73 from $22.74 at year end. Return on equity was negative 18.6 percent in the quarter.

Citigroup's results came a day after Merrill Lynch said it took more than $6.5 billion in write-downs.

Since the credit crisis began last summer, financial companies worldwide have suffered more than $230 billion of write-downs and credit-related losses.

Early Innings

The problems put stress on Citigroup's high credit ratings.

On Friday, Fitch Ratings cut Citigroup to "AA-minus" from "AA," while Standard & Poor's said it may lower its own AA-minus rating. Moody's assigned a "negative" outlook to its "Aa3" rating, equivalent to a AA-minus.

Citigroup's investment bank suffered the brunt of the write-downs, and posted a $5.67 billion quarterly loss.

Profit dropped 45 percent to $1.43 billion in consumer banking, Citigroup's largest business. International consumer profit rose 33 percent, but U.S. consumer profit fell 84 percent. Citigroup recently lured Terri Dial from Lloyds TSB Group to run the U.S. business.

"We're in the early innings of the consumer credit loss cycle, and that's likely to continue into 2009," Crittenden said in the interview.

Profit fell 33 percent to $299 million in wealth management, including the Smith Barney brokerage and private bank. Alternative investments suffered a $509 million loss, hurt by write-downs and a hedge fund asset tied to Old Lane Partners, Pandit's former firm.

Pandit joined Citigroup in July. He became the bank's CEO in December, replacing Charles Prince, who had resigned under pressure the previous month.

Citigroup ended the quarter with $2.2 trillion in assets.

Through Thursday, its shares had fallen 18 percent this year, while the Philadelphia KBW Bank Index was down 9 percent. Citigroup shares' 52-week high is $55.53, set last May 23.

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