Transcripts

Citigroup's Write Down Causes Financial Break Downs

PAUL KANGAS: Shares of Citigroup tumbled more than 7 percent today after the financial giant posted the biggest quarterly loss in its 200-year history. To turn the tide, Citi announced dramatic steps to trim costs and boost cash. But as Suzanne Pratt reports, experts say it may take years for the bank to work through its problems.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The news from Citi was supposed to be bad, but it was even worse than expected. The bank's quarterly loss was double what Wall Street analysts were forecasting -- nearly $2 a share, or almost $10 billion -- its first quarterly loss in a decade. As part of the results, Citi took a massive $18 billion write- down in mortgage-related investments. Because the bank still has sizable exposure to the sub- prime market, some analysts say additional write-downs are probable. Still, Tom Kersting of Edward Jones, which has done investment banking business with Citi in the last year, says it's hard to forecast the size of future charge-offs.

THOMAS KERSTING, BANKING ANALYST, EDWARD JONES: We certainly don't expect write-downs anywhere near the magnitude that we saw in the fourth quarter. But if credit conditions continue to deteriorate, we could see some additional write-downs for Citigroup.

PRATT: In an effort to shore up its capital base, Citi announced today a cash infusion of more than $14 billion, a 40 percent cut in its dividend and the elimination of 4,200 jobs. Those layoffs follow 17,000 positions that were cut last April and today Citi management said more would be coming. As for Citi's stock, it continued to crumble today and has lost 50 percent since last summer. Many analysts say it's too early to consider buying the shares, even if management is headed in the right direction.

KERSTING: I think they've done a good job, a good initial job in addressing the first phase. I think the second phase of improving operations is going to be much longer term and much more challenging for Citigroup and its management team. And that's why we rate the shares a "hold."

PRATT: Concerns are also growing about Citi's consumer business. Today, Standard & Poor's cut the bank's credit rating. S&P analyst Tanya Azarchs said the downgrade reflects the possibility of new headwinds in 2008.

TANYA AZARCHS, CREDIT ANALYST, STANDARD & POOR'S: We don't necessarily think that all the problems are behind Citigroup. We think they may have problems in their loan book, their consumer loan book, particularly if a recession develops in this country.

PRATT: Other large banks are scheduled to report their quarterly results in the coming days. Analysts say those numbers won't be good, but they won't be as bad as Citi's, as no other bank has the same risk exposure to the sub-prime mortgage market. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.