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| Citi CEO has a $617 bn reason to worry |
| Bloomberg / New York Dec 16, 2009, 00:53 IST |
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Citigroup Inc Chief Executive Officer Vikram Pandit, emerging from a US bailout with higher capital levels and loan-loss reserves than any peer, still has a $617 billion reason to worry.
That’s the amount of assets left in Citi Holdings, the division that Pandit set up to strip his bank of unprofitable businesses, troubled loans and securities. While the bank has unloaded almost $100 billion of the assets so far, getting stuck with the rest may hinder earnings for years, analysts said.
“I wouldn’t say that all of their issues are completely behind them,” said Bill Tanona, an analyst at Collins Stewart Inc in New York who rates Citigroup “hold”. “We still have a soft economic environment and high unemployment, so losses are likely moving higher in the short term.”
Citigroup on Monday joined Bank of America Corp in exiting a taxpayer bailout programme. Both lenders received “exceptional financial assistance”, according to Treasury Secretary Timothy Geithner. Citigroup plans to raise capital and repay $20 billion of US funds as the government unwinds a stake in the bank. Wells Fargo said it will raise money to repay $25 billion bailout.
Citigroup fell 6.3 per cent in New York Stock Exchange trading on Monday to $3.70. The stock has tumbled 45 per cent this year, valuing the New York-based lender at about $85 billion. The bank earned $101 million in the third quarter, a fraction of the $3.59 billion of net income that JPMorgan Chase & Co reaped in the same period, and expects to lose $6.4 billion this quarter on the bailout repayment. Winding down Citi Holdings carries its own risks, because many of the assets, such as loans, are still producing interest income. In a research note, Sanford C Bernstein LLC analyst John McDonald estimated that the bank’s overall revenue may decline by 16 per cent in the next two years to $78.9 billion as Citi Holdings assets get sold or retired.
By 2011, Citigroup may post a $9.36 billion profit, McDonald estimated, as bad-loan costs decline by half to $21.9 billion. That compares with an estimated net loss of about $1.7 billion this year and is less than half the $22 billion that Citigroup earned in 2006. Any profit the bank does make will be spread among more shareholders. By selling at least $20.5 billion of common stock and equity units, Citigroup’s common shares outstanding will increase to about 28.5 billion, according to Edward Najarian, an analyst in New York.
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