As usual, this weeks financial news has revolved around more slashing of billions because of the sub-prime mortgage crisis. The troubled financial institution in the headlines is Americas biggest bank, Citigroup Inc. And just like every big story in the financial world, first there were rumors, and then there were scoops, and then there were announcements. However, when you read all of the financial news out there like we do all day at GC, it starts to become a little confusing as to what is fact and what was just a rumor anyway. But heres the breakdown of the Citi story so far:
Citi announced yesterday losses nearing $10 billion in the fourth quarter of last year. The Associated Press says it is the largest lost in Citis 196 years of historyouch! The loss was caused by write-downs totaling $23 billion directly related to the sub-prime market.
In response, Citigroup has plans in the works to slash jobs, in addition to the 17,000 jobs cuts last year.
On top of cutting its dividend and jobs, Citi has been petitioning for more capital. Good news came in for Citi when as speculated, Saudi Prince Alwaleed, a big shareholder in Citi, has agreed to help the bank, but the amount of his investment is unknown. He joins several private investors to give Citi $12.5 billion more in capital. Among these investors is also former Citi CEO Sanford I. Weill.
Also, the sovereign wealth fund Kuwait Investment Authority is investing $3 billion (and $2 billion in the also-struggling Merrill Lynch). In November Abu Dhabi Investment Authority agreed to buy $7.5 billion of stock in Citi. Foreign investors particularly in Asia have been key players in bailing out investment banks.
Another investment includes $400 million from the U.S. state of New Jersey through pension funds.
Are all of these investments from far off places a good thing for Citi and other banks? Former Citi head Weill says yes. I think it's positive, he was quoted in Business Week yesterday. It shows what investors feel about the financial business and specifically Citigroup. If they end up having lots of dollars from products they sell to us, they should have the ability to invest those dollars. These are long-term shareholders. For Citigroup to have investors who go from New Jersey, to California, to the Middle East, to Asia is a very good thing. Of course, he has a lot of stock in Citi, so we wouldnt expect him to say anything negative.
Will all of this be enough or should we expect an announcement that Citi is selling some of its business? That could be a definite, but whether Citi will sell in small or large chunks is unclear. CEO Vikram Pandit is said to be reviewing his options. Analysts say selling Smith Barney, Citis global private wealth management unit, could be likely.
One thing is clear: Vikram has his work cut out for him.
Stay tuned to www.globalcustodian.com for coverage.
Ellie Behling, reporter