Citigroup lost nearly $10 billion during the last three months of 2007, the company said Tuesday, attributing much of the loss to the subprime mortgage crisis that has been battering the U.S. banking sector for months.
The news from the financial giant — in addition to news on inflation and weaker-than-expected retail sales numbers — hit the stock market hard, with the major indices losing more than 2 percent.
It fell to Citigroup CEO Vikram Pandit to announce the bad news after just a month on the job. The bank racked up more than $22 billion in bad loans last quarter, which wiped out any profit the bank made and left it with a big loss. In a conference call with analysts, Pandit said most of the losses were in mortgage-backed securities.
"Even so, we need to do better and we will do better," Pandit said.
Pandit said he was still studying Citigroup's sprawling corporate landscape, and once he had done so, he would come up with a comprehensive plan to get the company's finances in order. That could mean selling off part of the company.
In the meantime, he said the company was cutting the dividend it pays shareholders and eliminating 4,200 jobs. Bert Ely, a banking consultant who has worked for Citigroup in the past, said the company is taking a hard look at its business.
"They're going in there and they're looking at their various lines of business and they're selling off assets where it makes sense to do so," Ely said.
Ely believes the company has made some progress in cleaning up its balance sheet, which has been cluttered with a confusing array of leveraged debt products. Citigroup officials also told investors they have attracted an additional $12.5 billion from big investors. The biggest share will come from the Government of Singapore Investment Corporation.
With these moves, Citigroup is hoping it can show shareholders that it is addressing its problems. But the efforts seemed to fall short, and Citigroup's shares ended the day down 7 percent.
James Ellman, head of hedge fund Seacliff Capital, says that a lot of shareholders were probably unhappy about the dividend cut. But Ellman says shareholders may also have been disturbed by a big increase in defaults for certain kinds of consumer loans at Citigroup — evidence of how much the economy has slowed.
"Now, unfortunately, the problem is migrating to credit-card portfolios to auto-loan portfolios and small commercial real-estate portfolios. And unfortunately, that will cause significant pain for Citigroup as well as for many other large banks in the United States," Ellman said.
Citigroup says the losses on the consumer loans have been offset by gains in booming overseas economies. But unless the mortgage crisis ends soon — something few people expect — 2008 is likely to be a tough year for the company.