By Alan Rappeport in New York
Published: January 16 2009 12:38 | Last updated: January 16 2009 15:50
Financial Times
Citigroup confirmed on Friday that it would split into two businesses after reporting a fourth-quarter loss of $8.29bn, or $1.72 a share.
The results were within the range of the $6bn-$10bn loss that analysts were expecting and compared with a loss of $9.8bn, or $1.99 a share, during the same period a year earlier. It was the bank’s fifth consecutive quarterly loss. Citi lost $18.72bn, or $3.88 a share, in 2008.
”Our results continued to be depressed by an unprecedented dislocation in capital markets and a weak economy,” Vikram Pandit, Citi’s chief executive, said in a statement.
Citi shares rose by 4.44 per cent to $4 in mid-morning trading.
The reorganisation will divide Citi into Citicorp and Citi Holdings. Citicorp will be a global “universal bank” while Citi Holdings will concentrate on the brokerage business and asset management.
”Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses,” Mr Pandit said.
The Citi board of directors will also see changes. Richard Parsons, the lead director, said on Friday that there had already been one departure and more were anticipated. Last week Robert Rubin, a former US Treasury secretary, announced his resignation as a director of Citi, ending a controversial decade on its board.
Citi’s results included the sale of its German retail banking operations for $3.9bn.
Fourth-quarter revenues were down by $5.6bn, or 13 per cent. Revenues for its global credit card business dropped 27 per cent, while consumer banking revenues were off by 22 per cent.
Earlier this week, Citi and Morgan Stanley announced a plan to slash $1.1bn in costs from the combination of their respective brokerages in a joint venture that will boast the largest army of financial advisers in the US.
The move enables Citi to raise much-needed capital while allowing Morgan Stanley to boost its exposure to retail clients at a time when its traditional investment banking and trading business have been hit by the financial crisis.
Morgan Stanley, which recently received a $10bn capital injection from the US government, will pay Citi $2.7bn in cash for 51 per cent of the venture and the right to buy more within three years, because Citi’s Smith Barney is the larger of the two brokerage units.
Citi also recorded a $5.8bn after-tax gain because the deal values Smith Barney at more than its value on the company’s books. As a result, Citi’s tangible common equity – a yardstick of financial strength – increased by $6.5bn.
Shares of Citi closed more than 15 per cent lower on Thursday on fears that the US government would have to come to the rescue of the troubled financial group, less than two months after a $300bn bail-out.
Any further government intervention would bring Citi a step closer to nationalisation. The government already owns the rights to become Citi’s largest shareholder through warrants to buy a 7.8 per cent stake in the bank. Injecting more capital, in the form of common or preferred shares, would only increase state ownership and probably cause sharp losses for investors
The once-mighty company has a market value of just over $20bn – much less than smaller rivals by revenues, such as Goldman Sachs and US Bancorp.
Copyright The Financial Times Limited 2009
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