Citigroup to buy Wachovia banking operations

A Wachovia Bank sign is seen inside an ATM booth in New York's financial district, September 18, 2008. (Brendan McDermid/Reuters)

Citigroup will absorb up to $42 billion of losses in the deal, with the FDIC covering any remaining losses, the government agency said Monday. Citigroup also will grant the FDIC $12 billion in preferred stock and warrants.

Another one bites the dust...

Citigroup loses almost $10B, slashes dividend

"Citigroup Inc. lost almost $10 billion in last year's final three months, the largest quarterly deficit in the bank's 196-year history, and slashed its dividend as it recorded a mammoth write-down for bad bets on the mortgage industry."

Citigroup Could Write Down Up to $24 Billion

"Citigroup could write down as much as $24 billion due to subprime and credit-related losses, CNBC has learned. In addition, the company could lay off as many as 20,000 workers as part of a comprehensive plan to slash costs and raise capital."

Selling the US by the dollar

"Citigroup's rescue did not come cheap. The deal was structured in the form of convertible securities that will require the company to pay junk-bond levels of coupon interest, reported by Barron's to be close to 11%, for the privilege of selling part of America's premier consumer financial institution into foreign hands."

Citigroup to sell $7.5 billion stake to Abu Dhabi

"Citigroup Inc (NYSE:C - News) is selling up to 4.9 percent of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi, giving the largest U.S. bank fresh capital as it wrestles with the subprime mortgage crisis and the resignation of its chief executive."

Citigroup problems grow

by Jonathan Stempel and Dan Wilchins, Reuters - Nov 5, 2007

Citigroup Inc's (NYSE:C - News) problems deepened on Monday as it was unable to assure investors a potential $11 billion write-down for subprime mortgages won't grow, and its nearly pristine credit rating was downgraded.

The largest U.S. bank also reduced previously reported third-quarter profit because of worsening credit market problems, which it expects to reduce future cash flow. Its shares fell more than 5 percent.

"There's no way I think anyone can give you an assurance of how things are going to move," Chief Financial Officer Gary Crittenden said on a conference call. "We've taken what we think is a reasonable stab."

Citigroup's struggles comes as the bank faces a leadership void following Chairman and Chief Executive Charles Prince's resignation on Sunday.

He left after a four-year tenure during which the bank's shares fell 17 percent amid criticism that Citigroup had grown unwieldy and lacked direction.

Former U.S. Treasury Secretary Robert Rubin, who led the bank's executive committee, was named chairman. Sir Win Bischoff, head of Citigroup's European business, became acting chief executive.

The announcement of an expected $8 billion to $11 billion write-down, equal to $5 billion to $7 billion after taxes, helped drag down shares of rivals such as Bank of America Corp (NYSE:BAC - News), Merrill Lynch & Co (NYSE:MER - News) and Morgan Stanley (NYSE:MS - News).

Investors worry that write-downs for subprime mortgages and other debt might not be isolated.

Citigroup on October 15 wrote off just $1.56 billion for its subprime portfolio for the third quarter, part of a $6.5 billion write-down for a variety of losses. The new write-down reflects problems discovered since then.

Analysts said Merrill Lynch may add to its own announced $8.4 billion write-down. That company ousted its chief executive, Stanley O'Neal, last Tuesday.

"It shows the clumsiness of pricing mechanisms across Wall Street," said Michael Holland, a money manager and founder of Holland & Co. in New York. He said it's difficult to value Citigroup "until the dust settles."

PRINCE ALWALEED

Saudi Prince Alwaleed bin Talal, Citigroup's largest individual shareholder, declined to comment on the company's problems until the "picture becomes clearer," spokeswoman Heba Fatani said.

Alwaleed endorsed bringing back Sanford "Sandy" Weill, who built Citigroup and hand-picked Prince to succeed him, to run the company on an interim basis, CNBC television said. Weill is not interested in returning to run Citigroup, but is willing to do what is needed to help, CNBC said.

Much of Citigroup's trouble relates to $43 billion of so-called collateralized debt obligations, or CDOs, linked to lower-quality mortgages.

While these "super-senior" securities were once considered rock-solid, Crittenden said investors stopped buying them.

Fitch Ratings cut Citigroup's credit rating one notch to "AA," its third-highest grade, from "AA-plus," citing "severe pressure" on capital markets operations and "an inhospitable consumer credit environment" as mortgage delinquencies soar.

Its outlook is negative, meaning another cut is possible within two years. Standard & Poor's said it may also downgrade the bank.

Citigroup lowered third-quarter profit to $2.21 billion, or 44 cents per share, from the reported $2.38 billion, or 47 cents, after writing off $270 million for the CDO portfolio. This brought the total quarterly write-down to $6.8 billion.

"We wouldn't be surprised if additional write-downs were forthcoming," wrote Goldman Sachs & Co. analyst William Tanona, who rates Citigroup "neutral."

SHARES FALL

Citigroup shares fell $1.97, or 5.2 percent, to $35.76 in afternoon trading, after earlier falling to $35.61. They began the year at $55.70. The yield on Citigroup's 6 percent notes maturing in 2017 rose to 1.57 percentage points above U.S. Treasuries from 1.45, according to MarketAxess.

Citigroup's problems come as Rubin and Bischoff try to restore morale while hunting for a permanent chief executive.

Four directors, including Rubin and Time Warner Inc (NYSE:TWX - News) Chief Executive Richard Parsons, are conducting the search.

Parsons is expected later Monday to step down as Time Warner chief executive, to be replaced by Chief Operating Officer Jeffrey Bewkes, but will remain chairman, CNBC said.

On a conference call, Rubin said he wants someone at Citigroup with the capacity to "relate ... to the multiplicity of businesses this institution has."

A candidate needs a "strong international focus, not necessarily enormous international experience," he said.

Citigroup operates in more than 100 countries, and generates nearly half its revenue internationally.

The bank declined to say how long the chief executive position will remain unfilled.

"I look forward to an interesting but relatively short period of months before handing over to the next CEO," Bischoff said.

Citigroup Inc. Searches for New CEO and Prepares to Take $8 Billion-$11 Billion in Losses

by Madlen Read, Associated Press - Nov 5, 2007

Citigroup Inc. shareholders may have finally gotten what they wanted -- the resignation of Chairman and Chief Executive Charles Prince -- but Wall Street's worries are far from over.

At an emergency meeting of the Citi board Sunday, the nation's largest bank announced Prince's widely expected departure, but also estimated it would take additional losses of $8 billion to $11 billion. In the third quarter, it already took a hit of $6.5 billion in asset mark-downs and other credit-related losses.

Meanwhile, the company remains entrenched in a mire of off-the-books investment vehicles funded by risky debt. Citigroup may need to take the fall for them if they fail.

And Citigroup's not alone in its debt problems. When borrowers with poor credit stopped paying their mortgages, many banks not only had to take losses on those subprime mortgages, they also saw instruments in their portfolios backed by mortgages plummet in value. No one knows how much longer home prices will keep slumping, and whether problems related to the housing market will start affecting other types of consumer debt.

Also to be seen is how much longer the credit markets will stay tight, and if the currently strong portions of the economy will be hampered by banks' inability to make loans.

"It's the lending practices," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. "How much is that going to be impaired?"

Citi said former U.S. Treasury Secretary Robert E. Rubin, once co-chairman of Goldman, Sachs & Co., will be chairing the beleaguered bank. Sir Win Bischoff, chairman of Citi Europe and a member of the Citi management and operating committees, will serve as interim CEO.

Prince joined former Merrill Lynch & Co. CEO Stan O'Neal, who resigned from the investment bank last month, as the highest-profile casualties of the debt crisis that has cost billions at other financial institutions as well.

Prince, 57, became chief executive of Citigroup in October 2003. Many shareholders criticized him openly for much of his tenure, as Citigroup's stock lagged that of its peers while Prince executed what was called an umbrella model of corporate organization, with several separate lines of business. Shares closed Friday at $37.73, about 20 percent below where they were when Prince became CEO.

Rubin, 69, after 26 years at Goldman Sachs, became President Bill Clinton's chief economic adviser in 1993 before leading the Treasury Department. His experience steering the U.S. economy during the Mexican and Asian financial crises could come in handy as Citigroup attempts to navigate the tight credit markets.

Bischoff was the chairman of the British investment bank Schroders PLC, then joined Salomon Smith Barney Inc., a subsidiary of Citi, when it acquired Schroders. He began his current position in May 2000.

"There's no change of strategy that we see, actually, going forward," Bischoff said, noting that the company still plans to focus on international expansion, at least until a new CEO is chosen.

It was not known whether Bischoff was in the running to replace Prince as CEO. Before Sunday's meeting, many ideas for Prince's replacement were floated by industry watchers; one name that has come up often is John Thain, who was once president of Goldman Sachs and is now CEO of NYSE Euronext.

But it may take more than a figurehead change to restore shareholders' confidence in Citigroup, considering how much bad debt it has on its hands and its hard-to-shed image of a rule-flouting old boys club.

In 2004, Citigroup had to close its Japan Private Bank amid allegations of improper activities. And in January, former head of global wealth management Todd Thomson resigned, reportedly having been forced out for extravagant spending and dealings with CNBC anchor Maria Bartiromo.

Citigroup did a minor reshuffing in early October, combining its investment banking and alternative investments businesses into one unit led by Vikram Pandit, who had led Citigroup's alternative investments unit. Tom Maheras, co-CEO of the investment banking unit, left.