New York: Citigroup Inc. could make as much as $24 billion in writedowns and lay off 20,000 workers as part of a plan to cut costs and boost capital, CNBC said on its website in a report dated 13 January.
The report said the plans will be unveiled on 15 January, when it reports its fourth-quarter results.
Citigroup is widely expected to report a quarterly loss and announce big lay-offs as it looks to cut costs in a tough business environment.
Many analysts believe Citi will also look to suspend or cut its dividend in a bid to save $10 billion cash a year.
The largest US bank by assets is looking to secure additional capital, which could come from sources such as the Middle East, a source familiar with the situation said. Newspaper reports have said Citi hopes to bring in $8-$14 billion from a number of investors.
Citi is also expected to announce big layoffs as soon as this week, potentially more than 10% of its staff, as it looks to cut costs in a tough business environment.
With news like that, the fact that analysts on average expect Citi to post a fourth-quarter loss of 88 cents a share before items may not seem quite as important.
“The earnings are relatively meaningless. People want to know where the company is moving after this quarter, and what kind of position Citi will be in to take advantage of an upturn, when it comes,” said Michael Holland, founder of Holland & Co., which does not own Citi shares, but is looking at them now.
Citi will kick off what is expected to be a gloomy season for fourth-quarter bank earnings, after the widening subprime crisis triggered writedowns and capital erosion at big banks.
Citi CEO Vikram Pandit, who took over the reins last month, faces difficult choices. The bank likely has many assets to write down, and Pandit probably wants to write down as much as possible to avoid paying for problems that were not under his watch.
In November, Citi said it could record an $11 billion writedown of repackaged debt in the fourth quarter. Markets for those securities have worsened since, meaning the charges could be much bigger — as high as $15-$20 billion, analysts have said.
New capital can help solve the problem.
Citi said in late November it was selling up to 4.9% of itself to the Gulf Arab emirate of Abu Dhabi in a bid to shore up capital.
The Wall Street Journal reported on 11 January that Saudi Arabian Prince Alwaleed bin Talal, Citi’s largest individual shareholder, will inject new cash into Citi, and China Development Bank may invest $2 billion. The Financial Times reported the Kuwait Investment Authority may invest as much as $2-$3 billion in Citi.
Wall Street firms hit by subprime-related losses have been turning to outside investors in droves.
Morgan Stanley said last month China would pump $5 billion into it as the investment bank posted a fourth-quarter loss.
Merrill Lynch also said last month it boosted its capital base by as much as $7.5 billion after selling a stake to Singapore state fund Temasek and asset manager Davis Selected Advisers. The FT reported on Sunday Merrill was looking for another $4 billion of capital.
Citi is also expected to announce job cuts this week, as it braces for a slowdown in many markets. Citi had 327,000 employees as of end-2006, and in April announced 17,000 job cuts.
There may be more bad news in store for US banks, analysts said, particularly after American Express Co said it was cautious about 2008 and was seeing negative credit trends in some markets. If AmEx’s clients, who tend to be relatively wealthy, are weakening, credit card lenders could find themselves writing off more assets.