|
New York, NY – Citigroup Inc. (NYSE: C) today reported a net loss for the 2008 second quarter of $2.5 billion, or $0.54 per share, based on 5,287 million shares outstanding.(1) Solid results in the core franchise were offset by write-downs and credit costs. Results include $7.2 billion in pre-tax write-downs in Securities and Banking. Additionally, credit costs increased $4.5 billion, mainly driven by Consumer Banking in North America and Global Cards.
Second Quarter Highlights Results improved substantially versus first quarter 2008 due to lower write-downs and good performance in the core franchise. Total assets declined by $99 billion since first quarter 2008; approximately two-thirds from legacy assets. Sale of non-strategic businesses on track; announced CitiCapital, Diners Club International and CitiStreet transactions. Capital position improved as Tier 1 Capital ratio increased to 8.7%; total allowance for loans, leases and unfunded lending commitments increased to $22 billion. Re-engineering efforts resulted in sequential decline in headcount and expenses. Headcount reduced by approximately 6,000 in the second quarter and approximately 11,000 in the first half of 2008. Net interest margin expanded 34 basis points versus the first quarter 2008, to 3.18%. Talent enhanced by strong new hires. On July 11, 2008, the Company announced the sale of its German retail banking operation, which is expected to result in an estimated after-tax gain of approximately $4 billion upon closing. This is expected to result in a pro forma increase to the second quarter Tier 1 Capital ratio of approximately 60 basis points.
Management Comment
"We continue to demonstrate strength in our core franchise. We cut our second quarter losses in half compared to the first quarter. The cost of credit increased by 20% from the first quarter, but write-downs in our Securities and Banking business dropped by 42%. Additionally, headcount and expenses declined sequentially. While there is still much to do, we are encouraged by our progress in delivering on our commitment to the re-engineering efforts," said Vikram Pandit, Chief Executive Officer of Citi.
"As part of our efforts to improve capital and balance sheet efficiency, we reduced legacy assets substantially during the quarter. We recently closed on the sale of CitiStreet and just last Friday, announced the sale of our German retail banking operation for a substantial gain. We continue to be focused on building the strongest team by attracting world class leaders to Citi and developing our current talent. This, combined with a sharp focus on customer relationships in all regions and an ongoing commitment to our strategic targets, will drive our earnings power going forward," said Pandit.
SECOND QUARTER SUMMARY Revenues were $18.7 billion, down 29%, largely driven by continued write-downs in Securities and Banking sub-prime related direct exposures in fixed income markets and a downward credit valuation adjustment related to exposure to monoline insurers. Revenues were stable across other businesses. The net interest margin increased 34 basis points versus first quarter 2008 to 3.18%.
Global Cards GAAP revenues increased by 3%, driven by double-digit growth in purchase sales and average loans outside North America, partially offset by lower securitization results in North America. Global Cards managed revenues increased 18%, driven by growth in average managed loans, up 11%, and improved managed net interest margin. Consumer Banking revenues increased by 1%, driven by strong loan and deposit growth, partially offset by lower investment sales. Revenues were also affected by a $745 million net loss from the mark-to-market on the mortgage servicing right ("MSR") asset and related hedge in North America. In the Institutional Clients Group, Securities and Banking revenues were down 94% to $539 million, due to substantial write-downs and losses related to the credit markets. These include write-downs of $3.4 billion on sub-prime related direct exposures (see detail in Schedule B on page 9), downward credit value adjustments of $2.4 billion related to exposure to monoline insurers, write-downs of $545 million on commercial real estate positions, and write-downs of $428 million, net of underwriting fees, on funded and unfunded highly leveraged finance commitments. Transaction Services revenues were up 30% to a record $2.4 billion, driven by strong growth in customer liability balances, up 15%, and assets under custody, up 13%. Global Wealth Management revenues grew 4% on strength in banking and lending revenues which were partially offset by a slowdown in capital markets, particularly in Asia. Results reflected full ownership of Nikko Cordial. Operating expenses were $15.9 billion, up 9%, primarily due to $446 million in repositioning charges and the absence of a $300 million litigation reserve release recorded in the prior-year period. Expense growth also reflected the impact of recent acquisitions. Expenses declined for the second consecutive quarter, due to continued benefits from re-engineering efforts.
Credit costs of $7.2 billion primarily consisted of $4.4 billion in net credit losses and a $2.5 billion net charge to increase loan loss reserves. Net credit losses increased $2.4 billion, primarily driven by residential real estate lending in North America and Global Cards. The incremental net charge to increase loan loss reserves of $2.0 billion was mainly due to residential real estate in North America.
Taxes. The effective tax rate on continuing operations was 52.2% versus 29.8% in the prior-year period. The increase in the tax rate was due largely to higher tax rates in the jurisdictions where the losses were incurred.
Capital Position. During the current quarter, Citi further strengthened its capital position by issuing $4.9 billion of common stock and $8.0 billion of preferred stock. Tier 1 capital ratio was 8.7% at quarter-end.
 |
Subscribe to this comment's feed
