10-QPeriod: Q3 FY2008

CITIGROUP INC Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 31, 2008For Securities:CC-PNC-PR

Summary

Citigroup Inc. reported a significant net loss of $2.815 billion for the third quarter of 2008, or $0.60 per diluted share, a substantial decline from the $2.212 billion net income in the same period last year. This loss was driven by a combination of factors, including elevated consumer credit costs, continued disruptions in fixed-income markets, and a general economic slowdown. Total revenues declined by 23% year-over-year, largely due to significant write-downs in the Securities & Banking (S&B) segment, which included substantial losses on structured investment vehicles (SIVs), Alt-A mortgage securities, exposures to monoline insurers, highly leveraged loans, and commercial real estate positions. The company also recorded a $712 million loss related to an auction rate securities (ARS) settlement. Despite the challenging environment, Citigroup announced significant strategic actions aimed at bolstering its capital position. On October 28, 2008, the company raised $25 billion through the sale of preferred stock and a warrant to the U.S. Department of the Treasury under the TARP Capital Purchase Program, which would have pro-forma increased its Tier 1 Capital ratio to approximately 10.4% as of September 30, 2008. Additionally, the company is progressing with the sale of its German retail banking operations, expected to yield an after-tax gain of approximately $4 billion in the fourth quarter of 2008. Management highlighted a strong liquidity position and continued efforts towards balance sheet de-leveraging.

Financial Highlights

23 data points
Beta

Revenue

$16.26B

Net Income

-$2.81B

-17.3% Net Margin

EPS (Diluted)

$-6.10

Free Cash Flow

$96.83B

Financial Statements
Beta
Revenue$16.26B
Operating Expenses$14.01B
Operating Income-$11.00B
Interest Expense$12.73B
Net Income-$2.81B
EPS (Basic)$-6.10
EPS (Diluted)$-6.10
Shares Outstanding (Basic)534.18M
Shares Outstanding (Diluted)583.11M

Key Highlights

  • 1Citigroup reported a net loss of $2.815 billion for Q3 2008, a significant deterioration from a net profit of $2.212 billion in Q3 2007.
  • 2Total revenues declined 23% to $16.680 billion, heavily impacted by substantial write-downs in the Securities & Banking (S&B) segment.
  • 3The S&B segment incurred significant losses due to SIV assets, Alt-A mortgages, monoline insurers, highly leveraged loans, commercial real estate exposures, and ARS settlements.
  • 4Provision for credit losses more than doubled year-over-year, increasing to $9.067 billion, driven by higher net credit losses and an increased build to credit reserves.
  • 5Operating expenses increased slightly by 2% to $14.425 billion, impacted by repositioning charges and fines, though headcount was reduced.
  • 6Citigroup raised $25 billion in preferred stock and warrants from the U.S. Treasury under TARP, significantly boosting its Tier 1 Capital ratio pro forma to 10.4%.
  • 7The company is on track to sell its German retail banking operations, expecting an approximate $4 billion after-tax gain in Q4 2008.
  • 8Consumer Banking revenues grew 2%, but North America Consumer Banking reported a significant loss of $1.080 billion.
  • 9Global Cards revenue declined 40% due to lower securitization results and the absence of prior-year gains.
  • 10Institutional Clients Group (ICG) reported a substantial loss from continuing operations of $2.017 billion, heavily influenced by negative revenue from S&B activities.

Frequently Asked Questions

Citigroup reported a net loss of $2.815 billion ($0.60 per diluted share) for the third quarter of 2008, a sharp contrast to a net income of $2.212 billion ($0.44 per diluted share) in the same period of 2007. This loss was driven by substantial write-downs in the Securities & Banking segment, higher consumer credit costs, and disruptions in fixed-income markets.

The primary drivers of the loss were significant write-downs in the Securities & Banking segment, including $2.0 billion on SIV assets, $1.2 billion on Alt-A mortgage securities, and $919 million in credit value adjustments on exposure to monoline insurers. Additionally, higher provisions for credit losses, a $712 million loss from the auction rate securities settlement, and the general economic downturn contributed significantly to the negative results.

Citigroup bolstered its capital by raising $25 billion through the sale of preferred stock and a warrant to the U.S. Department of the Treasury as part of the TARP Capital Purchase Program. This transaction significantly improved its pro-forma Tier 1 Capital ratio to approximately 10.4%. The company is also in the process of selling its German retail banking operations, which is expected to generate a substantial after-tax gain in the fourth quarter of 2008.

Performance varied significantly across segments. Global Cards saw a 40% revenue decline due to lower securitization results. Consumer Banking revenues grew 2%, but the North America Consumer Banking division reported a substantial loss. The Institutional Clients Group (ICG) experienced a significant loss, largely due to the negative performance in its Securities & Banking division. Global Wealth Management revenues declined 10%, impacted by market conditions.

The company noted a weakening of leading credit indicators, including higher delinquencies across various loan types, and trends in the U.S. macroeconomic environment such as rising unemployment. Management anticipates that credit card losses may continue to rise well into 2009 and acknowledged the possibility that loss rates could exceed historical peaks.