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Credit Crisis Pushes Citi to Dire Forecast

TheStreet.com,

Posted: 2007-10-01 13:31:29

Filed Under: Money

(Oct. 1) -- New York-based Citi said it will take a $3.3 billion hit in its securities and banking unit, tied to the collapse of the markets for mortgage securities and leveraged buyout debt. The announcement makes Citi the first big Wall Street bank to take a multibillion-dollar hit from the swooning credit markets.

Citi's losses include $1.4 billion of writedowns on funded and unfunded highly leveraged finance commitments, and $1.3 billion worth of losses on the value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation and other structured securities. Citi will also take losses of approximately $600 million pre-tax in fixed income credit trading due to significant market volatility and the disruption of historical pricing relationships.

Citi also said credit costs rose by $2.6 billion from a year ago in the latest quarter in its global consumer business, due largely to larger loan loss reserves.

"Our expected third quarter results are a clear disappointment. The decline in income was driven primarily by weak performance in fixed income credit market activities, write-downs in leveraged loan commitments, and increases in consumer credit costs," said CEO Charles Prince.

TheStreet.com

More from TheStreet.com:

"Our fixed income trading business has a long history of earnings power and success, as shown in this year's record first half results. In September, this business performed at more normalized levels and we see this quarter's overall poor trading performance as an aberration," Prince added. "While we cannot predict market conditions or other unforeseeable events that may affect our businesses, we expect to return to a normal earnings environment in the fourth quarter."

Analysts were looking for the bank to make $1.10 a share, up from $1.06 a year ago. A 60% drop from year-ago levels would put Citi's third-quarter profit at around 42 cents a share.

Last month, brokerage companies ranging from Lehman to Goldman posted third-quarter results that were generally not as dire as expected, in spite of some big writedowns. On Monday, UBS posted a weak quarter and set plans to cut its workforce.

Citi shares fell 88 cents to $45.79.

2007-10-01 07:48:20

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12 comments

jjbulldozer 05:02:47 AM Oct 03 2007

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citi bank and its emplyees should burn in hell.

Comfun75290 06:06:31 PM Oct 02 2007

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MORTGAGE INDUSTRY EXPOSED!!!!!
What ever borrower must know
http://www.rmdirect.net

kisco62 04:05:15 AM Oct 02 2007

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Citibank screwed me years ago on a credit card.I don't feel bad that they are taking a loss.

justpicky02 08:40:59 PM Oct 01 2007

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WHAT HAPPEN TO "FIXED RATE " WHY DIDN'T THEY JUST GET

THAT INSTEAD OF SUBPRIME LOANS , THIS WAY YOUR RATE

IS THE SAME , NOT CHANGING .

LCascario 08:28:30 PM Oct 01 2007

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First of all you can't believe half the crap you read or hear from the media....secondly you can make the "books" look in any direction you want.I filter everything I hear and believe half on a good day....get real!

twpallet 08:23:32 PM Oct 01 2007

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Greed is an embarassing trait. It reduces a Wharton Business School graduate to a sniveling, unemployed fool. A reasonable person would not lend mortgage money without documentation. Wal Mart is hiring and you get a free vest, morons.

Gaaoviluv 05:16:00 PM Oct 01 2007

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MORTGAGE INDUSTRY EXPOSED!!!!!
What ever borrower must know
http://www.rmdirect.net

sdanisbox 09:37:16 AM Oct 01 2007

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I think that amidst the endless series of articles that focus almost exclusively on subprime loans, that the financial news media is missing an even bigger story in regards to what's called "Alt-a" lending in the mortgage industry. At least with subprime loans the lenders were charging for the extra risk they were incurring by dealing with people who years back wouldn't have been eligible at all for mortgages. Alt-a mortgages include the kind of loans where the borrower wasn't even required to document their income, assets and liabilities. The result were millions of mortgages written where the borrowers were free to grossly exagerate their financial status. A recent survey of Alt-a mortgages showed that some 60% of those borrowings were made to people who exaggerated their income, and the income inflation was by an average of 50% more than they really made.

andreacemarshall 09:24:00 AM Oct 01 2007

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THE AMERICAN DREAM -- Do you own your house? Or does your house own you? I would like to hear from you where do you think the next bubble is gonna be in?

dclou3 08:37:35 AM Oct 01 2007

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Worried about subprime defaults, housing slump. credit crunch, decreased profits? Triple the personal exemption and standard deduction. Let the consumer spend his earnings to fix all those problems.

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