KEY POINTS:
Citigroup Inc said on Tuesday it plans to raise US$14.5 billion ($18.60 billion), slash its dividend and cut 4200 jobs to help shore up its balance sheet after a huge write-down for mortgages led to a record quarterly loss of US$9.83 billion.
The capital infusion includes US$12.5 billion from investors including Singapore's and Kuwait's governments, former Citigroup chief executive Sanford "Sandy" Weill and Saudi Prince Alwaleed bin Talal, Citigroup's largest individual shareholder.
Adding the much-needed cash may help the largest US bank and new chief executive Vikram Pandit survive through the credit market and housing crises.
Citigroup announced an US$18.1 billion write-down and cut its dividend 41 per cent. Some analysts expected or were hoping for even larger amounts, and said Citigroup faces a tough road ahead.
"You expected the figures to be shocking," said Simon Maughan, an analyst at MF Global in London.
"You cannot say it's definitively over but you have got to say, 'This is probably the big one'."
Shares of Citigroup fell US$1.76, or 6.1 per cent, to US$27.30 in morning trading on the New York Stock Exchange.
Citigroup's record fourth-quarter loss totaled US$1.99 per share, and was roughly twice as big as analysts expected. Standard & Poor's cut the bank's credit rating.
The loss stemmed largely from exposure to subprime mortgages, plus a US$5.41 billion jump in credit costs, including a US$3.85 billion charge to add reserves.
Citigroup, based in New York, cut its quarterly dividend to 32 cents per share from 54 cents, a move that could save it about US$4.4 billion a year.
The job cuts, equal to just over 1 per cent of Citigroup's work force, reduced earnings by US$337 million. They are in addition to 17,000 cuts announced last April.
Citigroup said it is raising US$12.5 billion from a private sale of convertible preferred securities.
It said the amount includes US$6.88 billion from Singapore Investment Corp Pte Ltd, and investments from the Kuwait Investment Authority, Weill and his family foundation, Alwaleed, the money manager Capital Research & Management, and the state of New Jersey. Kuwait said its investment totaled US$3 billion.
Citigroup also plans to sell US$2 billion more convertible preferred securities, and other preferred securities.
The new investments are on top of a US$7.5 billion infusion that Citigroup got in November from Abu Dhabi's government, in exchange for a 4.9 per cent stake.
"What Pandit's doing here is setting the table for 2008," said William Smith, chief executive of Smith Asset Management in New York. "The investment from Sandy Weill is a huge vote of confidence on his part. I'm surprised to see his name."
Alwaleed, in a statement, said his investment reflects his "strong support of Citigroup, and belief in its long-term success and profitability".
Merrill Lynch & Co, which has also suffered billions of dollars of subprime losses, on Tuesday announced a US$6.6 billion investment from Kuwait, the Korean Investment Corp and Japan's Mizuho Financial Group Inc. That's on top of a US$6.2 billion December infusion from Singapore's Temasek Holdings and money manager Davis Selected Advisers.
On a conference call, Pandit called the Citigroup investments "a vote of confidence" after an "unacceptable" quarter, adding: "There is no doubt that we're in the midst of a very challenging environment."
But unlike predecessor Charles Prince, who became known for making off-the-cuff comments that in retrospect looked unwise or ill-timed, Pandit said: "Given this environment, I'm not going to make any promises."
Pandit also said it is too early to assess whether Citigroup might divest less-important assets.
Through Monday, Citigroup shares had fallen 47 per cent in the last year, compared with a 28 per cent drop in the Philadelphia KBW Bank Index.
Mounting credit losses and a failure to consistently boost revenue faster than costs led to Prince's November departure.
Pandit joined Citigroup in July when the bank bought his hedge fund firm, Old Lane Partners LP, for US$800 million.
The US$18.1 billion write-down includes US$17.4 billion related to collateralised debt obligations, and was roughly twice the US$8 billion to US$11 billion that Citigroup had estimated November 4.
Citigroup also in December brought billions of dollars of debt-laden structured investment vehicles onto its balance sheet, after an attempt to create a "super-SIV" to help sell those securities foundered after a lack of investor demand.
The bank ended the year with a Tier-1 capital ratio of 7.1 per cent, down from 7.32 per cent on September 30, though above the 6 per cent that regulators say indicates a "well-capitalised" bank. The ratio measures a bank's ability to cover losses.
Citigroup said that if it completes the US$12.5 billion offering and its planned purchase of Japanese brokerage Nikko Cordial Corp, its Tier-1 ratio would be 8.2 per cent.
Chief financial officer Gary Crittenden said on the conference call he expected Citigroup to return to its targeted 7.5 per cent capital ratio in the second quarter.
He also said the bank at year end had committed to fund US$21 billion of leveraged loans for which it had found no buyers, down from US$38 billion at the end of September.
- REUTERS
CITIGROUP
* Has more than 200 million customers in 100 countries.
* Was founded in 1812 as the City Bank of New York. A US$140 billion merger with Travelers in 1998 saw it become the world's largest financial services organisation.
* Created revenue of US$146.7 billion in 2006, with a net income of US$21.538 billion.
* Currently employs 332,000 staff worldwide
Past scandals:
* The 2004 bond trading scandal, when Citigroup was criticised for rapidly selling 11 billion euro worth of bonds, only to buy them back at a reduced price.
* In June of last year Citigroup was ordered to pay more than US$15 million in fines and restitution after it was found inadequate disclosures had been made at investment seminars and investment documentation had been misleading during seminars for BellSouth Corp. employees.
* In November 2007 it became public that Citigroup was involved in the Terra Securities Scandal. Hedge funds sold by Terra Securities to municipalities in Norway were delivered by Citigroup. Terra Securities ASA filed for bankruptcy on November 28, 2007 after the Financial Supervisory Authority of Norway (FSAN) withdrew its permissions to operate.
A letter from the FSAN stated: ""The Supervisory Authority contends that Citigroup's presentation, as well as the presentation from Terra Securities ASA, appears insufficient and misleading because central elements like information about potential extra payments and the size of these are omitted."
* Sources: citigroup.com / Wikipedia
