Citi hit by $8.9 billion Q4 loss, splits company

US banking giant Citi today reported a net loss of $8.9 billion for the fourth quarter and a $18.7 billion loss for the whole of 2008. The bank will now be split into two entities.

The poor results and proposed restructuring is further evidence of how far Citi has fallen during the financial crisis. At the beginning of 2007, it was the largest bank in the world with a market capitalisation of $274.5 billion. As of January 15, 2009, Citi had a market cap of just $20.9 billion, a 92.4% fall in just two years. The bank cut 52,000 jobs last year.

Citi's fourth-quarter results would have been worse had it not raised $3.8 billion from the sale of its German retail banking operations. The only division to actually report a profit in the quarter was global wealth management, gaining $29 million, but all other parts of the business suffered significant losses.

The institutional clients group business was worst hit, recording a loss of $9.5 billion, which included a markdown of $5.3 billion on derivatives positions and $4.6 billion writedown on subprime mortgage assets. Private equity and equity investments were down $2.5 billion and alt-A mortgages $1.3 billion, while Citi also suffered $1.1 billion of losses on structured investment vehicles and $897 million related to monoline exposures.

Additionally, Citi's consumer banking franchise took a $1.7 billion quarterly hit, while the credit cards and corporate businesses lost $610 million and $421 million respectively.

Following months of speculation, Citi confirmed that it would split the company in two, subject to regulatory approval. Citicorp will focus on core businesses, including global transaction services, corporate and investment banking, private banking, branded credit cards and regional consumer and commercial banking. It will have estimated assets of $1.1 trillion and be 65% funded by deposits.

Citi Holdings will consist of brokerage and retail asset management, local consumer finance and a special asset pool. The latter includes $306 billion of securities that are covered by a loss sharing agreement, whereby Citi will absorb the first $29 billion of losses on the portfolio and 10% of further losses, while the government will shoulder the remaining 90%.

Justifying the split, Citi's chief executive Vikram Pandit said that although Citi Holdings included "attractive long-term businesses with strong market positions… they do not sufficiently enhance the capabilities of Citi's core business and in many ways compete for its resources".

The bank is currently looking to hire someone to head Citi Holdings, and says its financial reports will reflect the new structure from the second quarter.

See also: $20 billion bail-out for Citi
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