Maybe City's bounce a bit premature:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aElaUvS1sxzw&refer=news Citigroup May Need to Sell Assets to Bolster Capital (Update1)
By Bradley Keoun
April 19 (Bloomberg) -- Citigroup Inc. shareholders, cheered by a $5.1 billion first-quarter loss that wasn't as big as some analysts forecast, face growing concern that the bank may have to sell assets, reduce the dividend and attract outside investment to bolster capital.
Citigroup's so-called Tier 1 capital ratio -- a measure of its ability to withstand loan losses -- fell to 7.7 percent at the end of March, the New York-based bank said yesterday. Citigroup says it needs a 7.5 percent ratio to provide a margin of safety and preserve its
credit ratings.
The bank's shares surged 4.5 percent yesterday after it reported $16 billion of asset writedowns during the quarter, less than some observers predicted. The writedowns burned through much of the $30 billion of capital Citigroup has raised since late last year, leaving it vulnerable to further charges and loan-loss provisions.
``We're in a recession, they have a huge consumer book, and there's huge double-digit-billion provisions that they're going to have to take in the next 18 months to two years,'' CreditSights Inc. analyst
David Hendler said. ``They're undercapitalized for their risk.''
A weakening U.S. economy and rising consumer delinquencies have forced Chief Executive Officer
Vikram Pandit and Chief Financial Officer
Gary Crittenden to back away from assurances earlier this year that the bank didn't need to raise more capital. In January, Crittenden said Citigroup ``stress-tested'' its assumptions under ``multiple recessionary scenarios.''
`No Silver Bullets'
Asked yesterday if the bank might seek an additional infusion, Crittenden said, ``You can never say never.''
``This is a difficult business environment,'' Crittenden said on a conference call with analysts and investors. ``There are no easy solutions here, no silver bullets.''
Citigroup raised capital in December and January by selling stakes to investment funds controlled by foreign governments including Abu Dhabi, Korea and Kuwait. The infusion helped boost Citigroup's Tier 1 ratio to 8.8 percent by Jan. 22 from 7.1 percent at the end of the year.
The first-quarter loss was second in size in the bank's 196-year history only to the record $9.88 billion reported in the previous period. It wiped out so much capital that Citigroup may have to find outside investors or cut the dividend, Hendler said.
Citigroup in January slashed its
dividend by 41 percent, the first reduction since the early 1990s.
Downgrades
Standard & Poor's said it is reviewing Citigroup's rating for a possible downgrade, noting that earnings may be further depressed by loss reserves on the bank's loan portfolio. Fitch Ratings lowered the company's rating one level to AA- from AA, with a negative outlook. Fitch cited deteriorating earnings in the consumer business and investment bank losses.
Pandit, who took over in December, inherited the subprime mortgages and bonds now being written down from his predecessor, Charles O. ``Chuck'' Prince.
Yesterday
Pandit said he's selling assets and shedding units outside the retail banking, trading, investment-banking and transaction-processing businesses. He's cutting about 9,000 jobs over the next year, on top of 4,200 announced in January.
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