Citigroup Inc.'s problems deepened Monday as it was unable to assure investors that a potential $11-billion additional write-down for sub-prime mortgage-related securities wouldn’t grow, and its nearly pristine credit ratings were downgraded.
The largest U.S. bank also reduced its previously reported third-quarter profit because of worsening credit markets.
One day after Charles Prince stepped down as chairman and chief executive, Citigroup’s shares continued to slide, falling $1.83, or nearly 5%, to $35.90, their lowest close in more than four years. The stock is down 36% year to date.
Chief Financial Officer Gary Crittenden said on a conference call with analysts that the bank’s estimate of an additional $8 billion to $11 billion in credit write-downs was “a reasonable stab.” But he cautioned, “There’s no way I think anyone can give you an assurance of how things are going to move.”
Citigroup also lowered its third-quarter profit to $2.21 billion, or 44 cents a share, from the reported $2.38 billion, or 47 cents, after writing off $270 million for its collateralized debt obligation portfolio. The move brought the total third-quarter write-down for bad debts to $6.8 billion.
Wall Street’s major banks have shocked investors with the extent of their losses on mortgage-related securities. Rising loan defaults this year have hammered the value of mortgage-backed bonds and complex securities tied to those bonds, such as collateralized debt obligations.
As the market for those securities has dried up, the banks have been left holding the bag.
“We’re looking at another kitchen-sink quarter for Citigroup,” said Michael Mayo, an analyst at Deutsche Bank, referring to the likelihood of the bank taking heavy write-downs in the current quarter to try and clear the decks for an earnings recovery in 2008.
The potential losses are raising fears about the bank’s ability to maintain its current annual cash dividend rate of $2.16 a share.
“Under the current conditions, the dividend’s safe, but if they had dramatic additional write-downs, which is possible under some scenarios, then maybe it’s not as safe,” Mayo said.
Prince left after a four-year tenure during which the bank’s stock slumped and critics said the company had grown unwieldy and lacked direction. Some investors want the bank, which has $2.35 trillion in assets, to be broken up.
With Prince’s departure, former U.S. Treasury Secretary Robert Rubin, who led the bank’s executive committee, was named chairman. Win Bischoff, head of the European business, became acting chief executive.
Moody’s Investors Service and Fitch Ratings lowered Citigroup’s debt ratings Monday.
Moody’s cut Citigroup’s credit rating one notch to Aa2, its third-highest rating, from Aa1.
Fitch Ratings made a similar downgrade, to AA from AA-plus, citing “severe pressure” on capital markets operations and “an inhospitable consumer credit environment” as mortgage delinquencies soar.
Both agencies’ rating outlooks are “negative,” meaning further cuts are possible within two years.
Standard & Poor’s said it also may downgrade Citigroup.