Citi Loses Almost $10B, Slashes Dividend

Associated Press Modified: January 15, 2008 at 8:29 am •  Published: January 15, 2008
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NEW YORK (AP) -- Bad bets on mortgages led to a $10 billion loss for Citigroup Inc. in the final quarter of last year, the largest in its 196-year history. As a new wave of weak economic data intensified fears of a recession, the nation's biggest bank also cut jobs, slashed its dividend and turned to foreign investors for an infusion of cash.

The biggest hit came from a $18.1 billion write-down in the value of its investment portfolio. But the bank also set aside $4 billion on Tuesday to cover anticipated losses on loans to U.S. consumers - a sign that deflated home prices, high energy and food costs, and rising unemployment are making it difficult for many customers to keep up with their payments.

The news sent Citigroup's shares skidding 7 percent, wiping away almost $10 billion in market value on top of the $125 billion the shares already have lost over the past year. Citigroup's tumbling shares helped send the Dow Jones industrial average plunging more than 230 points Tuesday when the government reported that retail sales fell in December and inventories of unsold goods piled up at manufacturers and wholesalers, signs that consumers are pulling back their spending.

Citigroup's chief financial officer Gary Crittenden startled analysts on a conference call by saying the bank doesn't expect the housing industry to stabilize soon. He predicted already slumping U.S. home prices could fall 7 percent further this year and by a similar amount in 2009.

That led some analysts to predict more write-downs could come this year. New Chief Executive Vikram Pandit acknowledged as much, saying "the environment continues to be uncertain" and that the company's results going forward "will definitely be influenced by the economy."

Besides the housing slump, economists are growing more worried about the snowball effects of a shaky job market - which has been exacerbated by the loss of tens of thousands of jobs in the mortgage and housing industries.

Citigroup added to that total on Tuesday by saying it cut 4,200 jobs in the fourth quarter, separate from the 17,000 layoffs announced in the spring. Crittenden said Citigroup will cut more jobs, too. The bulk of the cuts have and will continue to be traders and investors in markets and banking - the main source of the bank's losses.

Pandit, who replaced Charles Prince in December, said the fourth-quarter results were "unacceptable" and that he has not finished his review of the bank's businesses, including the Smith Barney brokerage unit, and whether parts of the global bank's operations should be sold.

Pandit said Citigroup would continue to sell "non-core" assets. The bank has already sold shares in Redecard, a card business in Latin America, and an ownership interest in a unit of the Japanese brokerage Nikko Cordial it bought last year.

It was only a couple of months ago that bank executives were adamant that the dividend would not be cut. But they backtracked on Tuesday; the 41 percent reduction in quarterly payouts to 32 cents a share will save $5 billion a year but deprive that cash from shareholders.

"Banks are traditionally reluctant to cut dividends," said Alfred Mettler, a finance professor at Georgia State University. "Now, we have enough precedence that makes it possible for other banks to slash their dividends without being questioned by their shareholders."

Financial companies have been the highest dividend-paying sector in the stock market, but many - including Washington Mutual Inc., National City Corp. and the government-sponsored lenders Freddie Mac and Fannie Mae - have pared those payouts in recent months.

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