Friday, 20 June 2008

Citigroup Makes Another Visit to the Confessional

On a conference call on Thursday Citigroup CFO Gary Crittenden put to rest the idea that things are getting better at Citigroup anytime soon. From Bloomberg;

Citigroup Shares Fall on Writedown, Loss Forecast

``We will continue to have substantial additional marks on our subprime exposure this quarter,'' Crittenden said on the call, which was sponsored by Deutsche Bank AG. ``We may continue to see the magnitude of the marks decline, as the exposures that we have have declined.''

Second-quarter markdowns related to subprime mortgages won't be as large as the $6 billion recorded for the first quarter, Crittenden said. Citigroup may also have to write down the value of assets backed by so-called monoline insurance companies such as Ambac Financial Group Inc., after they were stripped of their AAA credit ratings, the 54-year-old CFO said.

Citigroup last quarter recorded a cost of $1.5 billion to account for the reduced likelihood that the insurers will be able to pay. The company may have a ``similar'' cost in the second quarter, Crittenden said.

Total credit costs, including loan write-offs and reserves for future losses, may exceed those reported for the first quarter, Crittenden said. The company had $5.6 billion of such costs in the first quarter, after a record $7.3 billion in the fourth quarter of last year, according to the firm's financial statements.

``This quarter will still have some of the same challenges that we had in the prior quarter, but it will also, I believe, represent sequential improvement over the prior quarter,'' Crittenden said. The bank expects to build reserves during 2008, particularly in its U.S. mortgage portfolio, he said.

On leveraged loans, Crittenden said the bank expects writedowns to be smaller than the $3.1 billion of markdowns taken in the first quarter.``The marks in this quarter are unlikely to be of that same magnitude, but again they are still sizable marks,'' he said.

Click on the link for the full story. The part in bold is my emphasis. I find this comment interesting. Whilst the writedowns on structured products are starting to decline the credit costs related to rising bad debts across all classes - mortgages, auto loans, HELOC's, credit cards, are rising.

I've mentioned this numerous here before, that the meltdown in structured prodcuts will eventually bleed through to more traditional business and that is what we are seeing in Citi's announcement, or should I say profit warning?

Also of interest was that no mention was made of the dividend. If Citi management continues to pay dividends and then turns around and dilutes shareholders through additional capital raisings then shareholders should be up in arms and management removed.