Thursday, March 27, 2008

Citigroup Expected to Experience More Significant Subprime Losses

According to Oppenheimer & Co.’s respected banking analyst Meredith Whitney, by the end of 2008, Whitney predicts that Citigroup will lose 15 cents per share and suffer further writedowns of $13.1 billion on leveraged loans and collateralized debt obligations.

Already, Citigroup decreased dividends and wrotedown almost $18 billion in subprime securities investments. The company cut 4,200 jobs and plans more workforce reductions in order to control costs. Thousands more Citigroup employees may lose their jobs, according to experts.

Uncertainty clouds Citigroup’s financial picture because of the firm’s lack of transparency about its overall loss exposure. At the end of 2007, Citigroup reported that off-the-balance-sheet entities tied to the firm had $356 billion in assets, with maximum potential loss exposure for those assets at $152 billion.

In its annual report, Citigroup stated that its trading arm holds roughly $20 billion in hard-to-value securities related to the commercial real estate market, which recently began to falter. These disclosures complicate investors’ grasp of Citigroup’s true position and the future of their investments.

No comments: