Citigroup loss beats forecast; shares up

From wire reports

July 19, 2008

NEW YORK - Citigroup has become the latest big bank to quell Wall Street's worries about a financial sector implosion, posting a $2.5 billion second-quarter loss that was smaller than expected.

Citi shares rose nearly 8 percent to a four-week high of $19.35 yesterday and helped lift other financial stocks, having joined JPMorgan Chase & Co. and Wells Fargo & Co. in convincing investors that the prognosis for the sector, while gloomy, may not be as dire as the market feared.

"Conditions have eased a little bit and at the same time they have been able to grow their top line," William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee told Bloomberg Television. "They haven't had a lot of clients run out the door. They have been able to maintain relationships. Now it's just a matter of being more profitable."

But it's hard to get too enthusiastic about clearing a low bar. It was Citi's third straight quarterly loss, and neither JPMorgan nor Wells Fargo managed to notch a profit gain compared to last year. Meanwhile, the brokerage Merrill Lynch & Co. reported a wider-than-expected quarterly loss. And next week, Wachovia Corp. and Washington Mutual Inc. are expected to reveal losses, too, with Bank of America Corp. predicted to report a steep profit decline.

"I don't think anyone's breathing too easily right now," said Prakash Shimpi, who works in the risk management practice at Towers Perrin. Determining the dollar value of certain assets backed by debt is still a tricky process, he said, even a year after the crisis began.

Citigroup, the nation's largest banking company by assets, lost the equivalent of 54 cents per share in the April-June period. In the same time frame last year, the bank earned $6.23 billion, or $1.24 per share.

The shortfall was tamer than the 66-cents-per-share loss that analysts, on average, were expecting, according to Thomson Financial.

Citigroup Inc.'s securities and banking division wrote down the value of its assets by $7.2 billion, before taxes, and an asset revaluation cost its consumer lending business $745 million. Those write-downs totaling about $8 billion are significantly lower than write-downs taken in the first quarter and in last year's fourth quarter.

However, credit costs jumped to $7.2 billion as more consumers defaulted on their loans - implying that while losses in the credit markets are decelerating, losses from actual defaults in Citigroup's mortgages, home-equity loans, auto loans and credit card lines are mounting. The $7.2 billion in credit costs included $4.4 billion in credit losses and a $2.5 billion charge to bulk up reserves for future loan losses.

"I think we have two to four quarters left," Chief Financial Officer Gary Crittenden said in an interview, referring to rising credit card losses. "Because of the mix of our business, it's possible that the peak will be higher than it was in the past." He said Citigroup's credit card exposure right now includes more risky, but higher-yielding, cardholders than in previous downturns.

The Associated Press and Bloomberg News contributed to this article.