economics

January 19, 2010

TARP Repayment Costs Citigroup

Filed under: Uncategorized — ktetaichinh @ 11:35 pm
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The bank narrowed Q4 losses but disappointed the Street after repaying nearly half of its taxpayer loans.

Giddy about merger talks elsewhere in the market, Wall Street shrugged off Citigroup’s below par quarterly results.

Despite narrowing its losses, Citigroup posted disappointing fourth quarter results before the opening bell Tuesday morning as the bank repaid government loans and conceded that the economic crisis is not yet over

The New York City-based bank posted net fourth-quarter losses of $7.6 billion, compared with $17.6 billion in the year-earlier quarter. Still, results were worse than analysts’ expectations for losses of just $6.5 billion, pushing the stock down several percentage points in pre-market activity. In early afternoon trading however, Citigroup ( C news people ) shares were up 2.1% to $3.49.

Investors focused instead on merger action in the food processing and security products sectors after the board of British confectioner Cadbury ( CBY news people )agreed to a sweetened $19.5 billion takeover by Kraft Foods ( KFT news people ), ending months of opposition, and Tyco International ( TYC news people )agreed to shell out $2 billion in cash and stock to acquire Brink’s Home Security Holdings ( CFL news people ). (See “Kraft’s Sweet Success.”)

Citigroup’s report came on the heels of JPMorgan Chase ( JPM news people )’s unsatisfactory report on Friday which took stocks lower and set the tone for this week’s corporate earnings releases, including Bank of America ( BAC news people ), Morgan Stanley ( MS news people ) and Goldman Sachs ( GS news people ). (See “JPMorgan Leads Financials Down On Loan Losses.”)

In the recent quarter, Citigroup said it completed the repayment of $20 billion in loans from the U.S. government under the Troubled Asset Relief Program, or TARP, lent in response to the subprime mortgage meltdown in the fall of 2008. The bank said that $6.2 billion of its quarterly losses were tied to repayment of TARP funds. Citigroup received $45 billion in bailout money.

The bank said it set aside $8.2 billion in the recent quarter to cover bad loans, 36% less than the year-ago quarter at the height of the credit crisis, indicative of early signs of improvement in its credit business.

Citigroup investor Saudi Prince Alwaleed bin Talal recently told Steve Forbes that he warned Citi chief executive Vikram S. Pandit, “The honeymoon is over now and 2010 has to be the year whereby you begin showing the world that you are a force to be reckoned with and get back Citigroup’s name to where it was pre-2007 crisis.” (See “Pandit’s Honeymoon Is Over“).

During a conference call with investors, Gerspach said that the number of new delinquent mortgage and credit card loans that were newly delinquent, or between one and three months past due, had started to stabilize and even drop in some of Citigroup’s lending portfolios.

Still, Pandit, who missed the spotlight last week as fellow titans of Wall Street testified before the special commission investigating the market meltdown of 2008-09, said the bank cut 100,000 jobs in 2009.

Hit hard by the credit crisis and resulting recession, Citigroup tried to reorganize and streamline its operations in 2009, splitting into two units: Citicorp and Citigroup Holdings.

Citicorp, which holds the bank’s primary businesses such as regional consumer banking, generated net income of $1.7 billion during the quarter, while Citigroup Holdings, which is where the bank placed noncore assets that it has been looking to sell or unwind, lost $2.5 billion.

In the fourth quarter, Citigroup posted 33 cents loss per share, in line with analyst estimates, on revenue of $5.4 billion, or $15.5 billion excluding the loss on the repayment of TARP.

Also Tuesday, Citigroup named former Morgan Stanley Asia chairman Alasdair Morrison, a longtime heavyweight in Hong Kong’s business world, to the new role of senior adviser, as the third-biggest U.S. bank by assets bolsters its global banking business in the burgeoning region. (See “Citigroup Hires Hong Kong Heavyweight.”)

The Associated Press contributed to this article

Chief financial officer John C. Gerspach admitted that “the environment continues to be challenging” but that “credit may be stabilizing or improving,” especially in its international business

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