Double of what analysts had predicted, Citigroup posted a whopping $8.9 billion fourth-quarter loss. The New York-based bank has been forced to resort to the drastic measure of splitting into two separate entities: Citicorp and Citi Holdings, as a means to try and raise some capital.
Citicorp will focus on traditional banking, with Citi Holdings to include the bank’s asset management and consumer finance units, as well as some $300 billion of Citigroup’s most risky assets. Citi Holdings also will oversee Citigroup’s 49% stake in the recently announced venture with Morgan Stanley.
By splitting in two, CEO Vikram Pandit believes Citigroup will be able to free up its capital, while at the same time unload the more troubled assets that have continued to plague the bank for the past year.
Citigroup’s fourth-quarter loss also included $7.78 billion in write-downs on subprime mortgages, collateralized debt obligations and structured investment vehicles. In total, Citigroup’s losses have surpassed the $90 billion mark over the past 15 months.
During the Jan. 16 2009 conference call with analysts, Pandit also noted the likelihood of future layoffs. The bank, which already reduced its workforce by 52,000 in 2008, is expected to let go another 23,000 employees by the end of December 2009.
In addition Citigoup’s woes are reflected in their plummeting share prices, which plunged nearly 90% in 2008. In October of 2008, the bank was the recipient of $45 billion from the U.S. Treasury in an attempt by the government to conduct an emergency rescue of the bank. Meanwhile, news of Pandit’s restructuring plans did little to improve investor confidence. Citigroup stock has been trading at below $3.50 which is a sign of trouble ahead, especially when you compare their January 16, 2007 stock price which was trading at $54.39 some three years ago.