Citigroup announced a steep cut in its stock dividend and another big investment by foreign investors yesterday after taking more write-downs related to subprime securities and posting a $9.83 billion loss for the fourth quarter.
Beginning what is expected to be a grim week for financial company earnings, Citigroup said it was writing down $22.2 billion because of soured mortgage-related investments and bad loans. The bank is also cutting its dividend by 41 percent and obtaining a $12.5 billion cash infusion to strengthen its balance sheet, including big investments by its former chairman, Sanford I. Weill, and the Government of Singapore Investment Corp.
Facing rising expenses and deepening losses, Citigroup is expected to embark on a major cost-cutting campaign that could result in at least 4,000 layoffs. And thousands more could be in the offing in the coming months.
The write-downs caused Citigroup to swing to a loss for the fourth quarter. The fourth-quarter loss translated into $1.99 a share, compared with a profit of $5.1 billion, or $1.03 a share, in the period a year earlier. Revenue fell 70 percent, to $7.22 billion from $23.83 billion. The write-downs included $18.1 billion from a sharp drop in the value of mortgage-related securities and heavy trading losses. The company also set aside an additional $4.1 billion to cover expected losses from bad loans.
For the full year, Citigroup reported that net income dropped 83 percent, to $3.62 billion, or 72 cents a share, compared with 2006 profit of $21.53 billion, or $4.31 a share. Revenue fell 9 percent, to $81.7 billion in 2007.
Once one of the world’s mightiest banks, Citigroup’s capital levels have been severely depleted in the fallout from the continuing credit crisis and worsening downturn in the housing market. Even with the $12.5 billion capital injection, analysts think that the bank may need even more money to shore up its balance sheet if economic conditions worsen.
“In an uncertain environment, these actions put us on our ‘front foot,’ focused on capturing opportunities that earn attractive returns for our shareholders,” Vikram S. Pandit, Citigroup’s new chief executive, said in a statement. He said the bank’s fourth-quarter results were “clearly unacceptable.”
Citigroup lined the $12.5 billion of capital through the sale of convertible preferred securities from several big investors, including two funds sponsored by cash-rich foreign governments. That comes on top of a $7.5 billion stake that the company sold to a Middle Eastern government fund, the Abu Dhabi Investment Authority, in November.
The Government of Singapore Investment Corp. will make a $6.88 billion investment, giving it one of the biggest ownership stakes in the company.
the New Jersey Division of Investment also made large investments.
But the most interesting investments came from Weill and Prince Alwaleed bin Talal of Saudi Arabia, who met privately to discuss ousting Charles O. Prince III, Citigroup’s former chairman and chief executive, soon before he resigned in early November. Prince Alaweed, who until recently had been Citigroup’s biggest shareholder, had bailed out the company from the real estate crisis in the early 1990s. Weill, Citigroup’s former chairman who four years ago chose Prince as his successor, has complained his own personal fortune has been hurt by the bank’s poor performance and may see this as his own personal rescue mission. Both are also large existing shareholders and their actions will prevent their ownership stakes from being more severely diluted.
Citigroup announced other actions to strengthen its finances. It will offer public investors about $2 billion in newly issued debt securities, a portion of which will be convertible. It reduced the assets held on its balance sheet by $176 billion, or 7.4 percent, by shedding mortgage-backed securities and other assets held by both its consumer and investment banking businesses. And it sold ownership stakes it held in Redecard, a Brazilian company in the credit card industry, and an investment advisory arm of Nikko Cordial, a Japanese brokerage it agreed to buy last spring.
Citigroup’s board agreed to cut the stock dividend to 32 cents from 54 cents, reversing a position it staunchly held for the last few months. The reduction could free up $4.4 billion a year but could be a significant blow to big institutional shareholders and many retail investors, who bought Citigroup shares for their retirement accounts.
The latest moves highlight the extent to which Citigroup’s capital position has weakened and raise questions about the company’s diversified business model.
“The board has been behind the ball, no doubt about it,” said Meredith A. Whitney, a banking analyst at CIBC World Markets, who has called on Citigroup to cut its dividend. “This is a company with serious capital shortfalls. The balance sheet should be the first thing that should be looked at for a bank, not the last.”
The actions are perhaps the most crucial steps taken by Pandit since he was named chief executive last month. Over the last few weeks, he has made several changes to the senior management team, including the appointment on Monday of a chief talent officer — a position that had not previously existed. He has also begun reorganizing the company, combining its investment banking and alternative investments groups and changing some of the consumer bank’s reporting lines.
Pandit is undertaking what he called “an objective, dispassionate” review of the company’s main businesses, which could result in more changes. Next month, he will also embark on a “listening tour,” visiting with Citigroup employees around the world.