Citi posts $10B Q4 loss, $18.1B write-down, cuts jobs

NEW YORK -- In a sign that the meltdown in the subprime mortgage market has not abated, Citigroup c announced a fourth-quarter loss of nearly $10 billion Tuesday, due largely to an $18 billion write-off of subprime-related assets. The bank also said it is in the process of laying off 4,200 employees.

Shaken by the erosion of its capital base, Citi struck a deal for a $12.5 billion cash infusion from the sovereign investment funds of Singapore, Kuwait, the state of New Jersey, and two men who are already heavily invested in the success of the bank: Saudi Prince Alwaleed bin Talal, who owns about 4% of Citi stock, and former Citigroup CEO Sandy Weill, architect of the bank's "financial supermarket" growth strategy.

The bank also said it plans to sell $2 billion worth of new shares to the public and cut its dividend from 54 cents a share to 32 cents. The fundraising moves come just weeks after Citi announced a $7.5 billion cash infusion from the government investment fund of Abu Dhabi.

In afternoon trading on the New York Stock Exchange, Citigroup's stock was down almost 7%.

Vikram Pandit, who took over as CEO of the bank a month ago, described the losses as "unacceptable" and told analysts in a conference call that "we need to do better and we will do better."

In October, Citigroup announced that losses in the bank's subprime mortgage portfolio could be as large as $8 billion to $11 billion. In an ominous note for investors, chief financial officer Gary Crittenden acknowledged Tuesday that problems in that area had not leveled off, but grew progressively worse in November and December.

In addition to the $18 billion in losses on assets comprised largely of subprime-related loans, Citigroup said it boosted loan-loss reserves by $4.1 billion, signaling further problems in its consumer businesses as deflated home prices, high energy and food costs, and rising unemployment weigh on people's ability to make their loan payments.

For the quarter, Citigroup announced a loss of $9.83 billion, or $1.99 a share, vs. earnings of $5.13 billion or $1.03 a share a year earlier. Citigroup's revenue fell 70% to to $7.22 billion.

In response to the earnings stumble, credit ratings agency Standard & Poor's downgraded the bank with a negative outlook for the next year.

S&P said the downgrade partly reflected expectations that Citigroup's performance could be "rocky" in 2008 with a continued difficult operating environment for U.S. banks.

The 4,200 job cuts announced Tuesday are in addition to 17,000 layoffs announced in the spring, and Crittenden said more would be on the way.

"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."

Analysts polled by Thomson Financial, on average, forecast a loss of $1.03 a share on revenue of $10.64 billion. The biggest loss estimate for the quarter was for a loss of $1.43 a share, while the lowest revenue estimate was for $6.47 billion.

Citigroup said the 41% cut in its quarterly dividend along with the Asian investments and the stock offering will help boost its Tier 1 capital ratio, a measure of its financial strength.

Financial companies have been the highest dividend-paying sector in the stock market, but many — including Washington Mutual wm, National City ncc and the government-sponsored lenders Freddie Mac fre and Fannie Mae fnm— have pared those payouts to boost capital in recent months.

Citigroup's decision to cut its dividend and seek new cash from outside investors was widely anticipated on Wall Street after months of scrutiny over the bank's deteriorating operations. The biggest was Citigroup's bad bets on mortgage-backed bond instruments called collateralized debt obligations. It also was forced to bring $49 billion in hemorrhaging funds known as structured investment vehicles onto its books.

Over the past several weeks, Asian funds have been buying up the battered stocks of struggling U.S. banks. Early Tuesday, Merrill Lynch mer said it will receive a total of $6.6 billion from the Korean Investment Corp., Kuwait Investment Authority and Japan's Mizuho Corporate Bank, in addition to $4.4 billion it has already gotten from Singapore's state-run Temasek Holdings.

Pandit said Citigroup would continue to sell "non-core" assets. The bank has already sold shares in Redecard, a card business in Latin America, and an ownership interest in a unit of the Japanese brokerage Nikko Cordial it bought last year.

Citigroup's $18.1 billion write-down was significantly wider than the $6 billion write-down it took in the third quarter and bigger than the $8 billion to $11 billion it guessed in October that it would take for the fourth quarter.

Citigroup said that as of Dec. 31, it had a total of $37.3 billion in direct subprime mortgage exposure, down from $54.6 billion three months prior.