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Citigroup has dismayed investors with downbeat comments about its future profitability, as it warned that its mortgage customers were defaulting in higher numbers than expected and that parts of its investment banking business had shrunk permanently.
The financial conglomerate said it was abandoning a share buyback programme while it worked to rebuild its balance sheet.
Although its quarterly results yesterday came in a touch ahead of the reduced expectations Citigroup had set at a profit warning on October 1, analysts were alarmed by new details revealed in the full earnings report.
In particular, a charge of US$2.24 billion ($2.94 billion) to cover rising defaults by mortgage, credit-card and loan customers was worse than Wall Street had been expecting, and exposed the growing debt problems faced by many American consumers.
"If corporate credit goes the way of consumer credit, Citigroup is going to have some big problems," said Jaime Peters, a banking analyst at Morningstar.
Citigroup had previously announced that it was writing down the value of its portfolio of mortgage-related debt instruments by US$1.4 billion, and of its portfolio of loans to private equity buyouts by US$1.6 billion, and taking a US$636 million hit from trading-desk losses. The 57 per cent drop in quarterly earnings was better than the 60 per cent fall expected since October 1, and Citigroup hailed progress on cutting costs. Chuck Prince, the beleaguered chief executive, said that "any fair-minded person would say the strategic plan is working".
Citigroup said rebuilding its balance sheet would take into next year, when it would reconsider its buyback programme.
- Independent
