Citigroup, The Baby & The Bathwater (C)

Citigroup (NYSE: C) has come out with its highly awaited earnings.  The numbers and comments are all slightly different than prior media reports indicated, and some are not quite as aggressive as we expected.

• The company’s net loss headline numbers is a loss of $9.83 Billion, or -1.99 per share (compared to -$1.00-ish consensus estimate from First Call). Results include $18.1 billion in pre-tax write-downs and credit costs on sub-prime related direct exposures in fixed income markets, and a $4.1 billion increase in credit costs in U.S. consumer primarily related to higher current and estimated losses on consumer loans.
• Citigroup is raising $14.5 Billion, $12.5 Billion of which is via a private placement of convertible preferred securities and $2 Billion in a public sale of convertible preferred securities.
• The $0.54 dividend is being cut down to $0.32, which isn’t as bad as the 50% guestimate that was going around yesterday.
• It is continuing its divestiture of what will be deemed non-core assets. Its costs included 4,200 layoffs.
• After the divestitures, Citi’s Tier One capital ratio would be approximately 8.2% and its TCE/RWMA capital ratio would be approximately 6.6%.  These are exceeding its previously announced targets.

You can go through the full releases if you choose, but these are tomes with explanations of each unit and in each global region.  If you want an opinion here, this looks, feels, and sounds like it is probably the first stage of a complete and full business review that doesn’t sound entirely complete.  It appears that the initial reaction to the numbers put shares up over 1%, but we caution that with more than 2 and a half hours to the open that these numbers are preliminary pre-market trades and might be grossly different than the trading by the time the market opens.

Jon C. Ogg
January 15, 2008