Retail Numbers (Disappointing) And Citi (They Blew It)

Retail sales a clear disappointment, dropped futures even more, only good news is Fed has even more room to ease here.

Citigroup reported a fourth quarter loss of $1.99, $1.03 expected. Losses were driven by write-downs (of $17.4 billion) and losses in subprime, and an increase in credit costs of $5.4 billion in the consumer loan portfolio (more signs that the consumer is slowing down).

As for replenishing capital, even though the company raised $7.5 billion recently from Abu Dhabi's investment arm, they are planning to sell an addition $14.5 billion in preferred stock, much of it to Singapore's sovereign wealth fund.

They will also cut their dividend 41 percent, from $0.54 to $0.32 (so much for protestations from the company that they would not cut the dividend). As for asset sales, another way to replenish capital, no word on big sales but the company plans to continue to sell mortgage-backed securities.

Job losses totaled 4,200, a surprisingly low figure. Most believe there will be more to come.

What little good news there was was in the international consumer business, where revenues rose 45 percent. Also note that revenues rose 27 percent in the wealth-management unit, which includes Smith Barney.

Bottom line: they blew it. The stock is down because traders don't believe this was the "kitchen sink" quarter. They did not announce enough losses ($17.4 billion sounds like a lot, but they still have some $37 billion in additional exposure to subprime), they should have cut the dividend more, and 4,200 job cuts is way below what the Street was expecting.

Standard and Poor's has just lowered the long-term counterparty credit ratings on Citi to reflect the large losses. They note that more write-downs of mortgage-related securities "cannot be ruled out" and that escalating credit costs could lead to more provisions for losses.


1) Merrill Lynch will issue $6.6 billion in preferred stock, to Korean Investment Corp, Kuwait Investment Authority, and others.

2) Williams-Sonoma down 15 percent pre-open, as they lowered their guidance for the quarter (which ends in January), noting that traffic slowed "even further than we anticipated."

3) Wall Street Journal reporting that Delta has started merger talks with Northwest and UAL, and hopes to reach an agreement with one of them over the next two weeks.

Questions? Comments?