Mortgages Send Citi to Quarterly Loss And the Card Unit Didn't Help

Citigroup early Tuesday reported a $22.2 billion write-off due to its exposure to troubled U.S. mortgage and consumer credit markets, sending the banking giant to a net loss of $9.83 billion in the fourth quarter of 2007.

New York-based Citigroup, Inc. (NYSE: C), the largest U.S. bank, said that it will also cut its dividend payment by more than 40 percent, cut some 4,200 jobs immediately – with more probably coming later in the year – and receive a $12.5 billion cash infusion from outside investors, more than half of which will be coming from the Government of Singapore.

The quarterly loss, equivalent to $1.99 per share, is the largest in the bank’s 196 year history, according to Bloomberg.

“Our financial results this quarter are clearly unacceptable. Our poor performance was driven primarily by two factors – significant write-downs and losses on our sub-prime direct exposures in fixed income markets, and a large increase in credit costs in our U.S. consumer loan portfolio,” said Vikram Pandit, CEO, in a press release.

The majority of the $22.2 billion writedown came from the bank’s exposure to subprime mortgages. But $4.1 billion was allocated to other underperforming consumer asset classes, including credit cards. Expenses in the U.S. credit card unit soared.

For the fourth quarter, Citi’s U.S. card unit reported revenues of $3.56 billion, down slightly from the $3.57 billion the unit reported in Q4 2006. But higher operating expenses, and exposure to a massive settlement involving Visa, drove net income in the unit down 60 percent to $398 million. The card unit’s charge-off rate, rose to 5.11 percent, from 4.35 percent in Q4 2006, “driven by higher bankruptcy filings and increased delinquency flows,” the company said in a press release.

Although Citi blamed the rise in expenses on the $292 million it was forced to pay as a part of a $2.25 million settlement between Visa and American Express (“Visa to Pay AmEx $2.25 Billion in Settlement,” Nov. 8, 2007), the bank also recorded $136 million gain for the unit related to the sale of shares of credit card network MasterCard in the quarter.

For the full year, the U.S. card unit reported revenues of $13.4 billion, down 1 percent from 2006. Net income at the unit was down 26 percent to $2.9 billion for the year. Corporate-wide, Citi reported earnings of $3.6 billion for 2007, down 83 percent from the $21.5 billion it reported in 2006. Revenue was down 9 percent to $81.7 billion for the year.

Investors had largely expected bad news from Citi, pricing the bank’s stock accordingly in the past week. But shares of Citigroup still fell nearly 7 percent to $27.20 in midday trading Tuesday.