Citi Posts Smaller-Than-Estimated Loss on Writedown (Update1)

By Josh Fineman and Bradley Keoun

July 18 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, reported a smaller loss than analysts estimated after about $7.2 billion of credit-market writedowns.

Citigroup rose in New York trading after the bank said its second-quarter net loss was $2.5 billion, or 54 cents a share, compared with earnings of $6.23 billion, or $1.24, a year earlier. Analysts estimated the loss would be $3.67 billion, according to a Bloomberg survey.

Citigroup's report follows surprisingly strong profits from JPMorgan Chase & Co. and Wells Fargo & Co., and disappointing results from Merrill Lynch & Co. Citigroup Chief Executive Officer Vikram Pandit, who took over in December, has raised $44 billion of capital and outlined plans to reduce assets by $400 billion over the next two to three years.

``The worst news is out,'' said Malcolm Polley, chief investment officer of Milwaukee-based Stewart Capital Advisors LLC, which manages more than a $1 billion, including Citigroup shares. ``I don't think it's going to get worse. It may not get better for a while.''

Credit Suisse Group analyst Susan Roth Katzke had predicted the company would have as much as $10 billion of writedowns in a June 24 note. Shares of the company rose to $18.56 in New York trading, from $17.97 at the close on the New York Stock Exchange yesterday.

Second-quarter revenue dropped 29 percent to $18.7 billion, compared with the average estimate of $17.3 billion among analysts surveyed by Bloomberg.

Consumer Banking

The U.S. consumer unit, which includes retail banking and loans to individuals and small businesses, had revenue of $7.89 billion, virtually unchanged from a year earlier. The global cards business rose 3 percent to $5.47 billion.

Revenue at Citigroup's corporate and investment bank plunged 71 percent to $2.94 billion.

Pandit, 51, put former Morgan Stanley colleague John Havens in charge of trading and investment banking, moved U.S. consumer head Steve Freiberg to head a new credit-card division and recruited former Wells Fargo executive Terri Dial to oversee consumer banking in the U.S.

He also is taking steps to free up capital by selling assets. Under Prince, Citigroup's balance sheet swelled by $689 billion, an amount larger than the entire balance sheet of Wells Fargo, the fifth-biggest U.S. bank. Total assets stood at $2.2 trillion at the end of last year.

Prince Era

Citigroup slumped 39 percent this year through yesterday, reaching the lowest point since the bank was created a decade ago from the merger of Citicorp and Travelers Group Inc. The decline led to the ouster of former CEO Charles O. Prince as credit- market losses piled up and Citigroup's market value fell below those of Bank of America Corp. and JPMorgan. New York-based JPMorgan reported second-quarter earnings yesterday of $2 billion. Wells Fargo's profit was $1.75 billion.

``We will continue to have substantial additional marks on our subprime exposure this quarter,'' Chief Financial Officer Gary Crittenden said on a conference call last month.

Citigroup also wrote down the value of so-called monoline insurance companies including Ambac Financial Group Inc. after they were stripped of their AAA credit ratings.

``All of the over $300 billion in capital raises worldwide have plugged holes,'' Oppenheimer & Co. analyst Meredith Whitney said in a Bloomberg Television interview earlier this week. ``They haven't funded new equity growth. You plug these holes and you are still in the same situation where you started off.''

Dividend Speculation

The bank slashed the quarterly dividend by 41 percent in January to 32 cents a share, the first drop since the early 1990s. Analysts including Whitney have said the bank may have to cut the dividend again to bolster capital as losses escalate.

Pandit said in May that Citigroup will shed ``legacy assets,'' including real estate holdings and collateralized debt obligations, such as bonds backed by pools of subprime mortgages.

Citigroup also plans to cut $15 billion in costs in the next two to three years, while aiming for revenue growth of 9 percent, Pandit said.

The bank said in January it would eliminate about 4,000 jobs in the securities division, and said two months later that the number had increased by about 2,000. Citigroup said in April it would slash 7,000 jobs outside the investment banking group over the next year, and executives have said further reductions are likely.

Citigroup agreed to sell its German consumer banking unit to France's Credit Mutuel Group last week for 4.9 billion euros ($7.7 billion).

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: July 18, 2008 06:51 EDT

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