Citigroup to split as losses grow

Citigroup was bailed out by the US government in November

Struggling US banking giant Citigroup has announced plans to split the firm in two, as it reported a quarterly loss of $8.29bn (£5.6bn).

(BBC UK) It said it would realign into two new firms, Citicorp and Citi Holdings.

Citicorp will handle the company's traditional banking work, while Citi Holdings will take on the firm's riskiest investment assets.

Last autumn, Citigroup had to be rescued by the US government in a bail-out deal totalling $45bn.

The government also agreed to guarantee up to $306bn (£205bn) of risky loans and securities on Citigroup's books.

'Ongoing efforts'

"Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses," said Citigroup chief executive Vikram Pandit.

"This will help in our ongoing efforts to reduce our balance sheet and simplify our organisation.

"We are setting out a clear roadmap to restore profitability."

Citigroup's net loss for the last three months of 2008 works out at $1.72 per share, worse than analyst expectations of $1.31.

Its quarterly revenues were down 13% to $5.6bn, which Citigroup said reflected "the impact of a difficult economic environment and weak capital markets".

"I think people knew it was going to be bad, but I'm surprised it's this bad," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.

Good and bad

Analysts say the split essentially puts Citigroup's solid and profitable consumer banking interests in the hands of the new Citicorp, while the bad investment debts that forced it to seek government help go into Citi Holdings.

This will enable Citicorp to return to profitability much quicker than would have been possible for Citigroup as a single firm.

CITIGROUP SPLIT Citicorp - to have responsibility for universal banking operations Citi Holdings - to take on the firm's brokerage and investment interests, and a special pool of loss-making assets The rise and fall of Citigroup

Meanwhile, the bosses at Citi Holdings will have the arduous task of sorting through the mass of bad debt, picking out what can be salvaged.

Citigroup said it was now looking for a "strong manager" to head Citi Holdings.

Redundancies

For 2008 as a whole, the bank made a net loss of $18.72bn.

It blamed the losses on having to write-off bad debt and the cost of making redundancies.

The firm cut 52,000 jobs last year as its losses mounted against the backdrop of the sharp downturn in the US mortgage market and the resulting global credit crunch.

"We are committed to helping the financial markets recover as quickly as possible," added Mr Pandit.

The firm added that it also expected further departures from its board of directors.

It was announced last week that director Robert Rubin, a former US Treasury Secretary is to leave the firm.

Bank of America

Citigroup's announcement comes after news that rival Bank of America is to receive $20bn in fresh US government aid and $118bn worth of guarantees against bad assets.

The emergency funding will help the troubled bank - the US's largest - absorb the losses it incurred when it bought Merrill Lynch.

Bank of America has already received $25bn in capital injections from the Troubled Assets Relief Programme, known as Tarp, the bail-out fund designed to rescue banks reeling from the financial crisis.

In another development, the Irish government has said it is to nationalise the Anglo Irish Bank after its funding problems continued.

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by wahzhu

Markets start year on upbeat note

World stock markets have started the year on a positive note, gaining ground after shares saw record falls in 2008.

In London, the FTSE 100 index was up by 2.88% at close and in France and Germany the major indexes had risen by 4.09% and 3.39% respectively.

At close on Wall Street, the Dow Jones ended the day 2.94% ahead.

However, analysts said gains might not be sustainable, with many market participants still on holiday and low trading volumes.

'Distant horizons'

"It is customary to greet the New Year with a surge of optimism," said Stephen Lewis, an analyst at Monument Securities.

"Past cares are buried as eyes are raised to more distant horizons."


2008 - MAJOR MARKET FALLS
New York - down 33.84%
London - down 31.3%
Paris - down 42.7%
Frankfurt - down 40.4%
Mumbai - down 51.9%
Singapore - down 49.2%
Sydney - down 41.3%
Hong Kong - down 48.3%
Shanghai - down 65.2%
Tokyo - down 42.1%

The FTSE 100 had suffered its worst year on record in 2008 - a fall of 31.3%.

In Asia, South Korea's main stock index closed up 2.9% at 1,157.40 points. Hong Kong's Hang Seng index rose 4.6% and Indian shares climbed 0.6%.

Markets in Japan and China were closed for a public holiday.

At close in the US, the Nasdaq was also ahead, by 3.50%, and the S&P 500 was up 3.16%.

Record falls

Global markets saw record falls in 2008 as the financial turmoil and economic slowdown ended the stock market boom.

Shanghai was one of the worst-hit major markets, ending the year 65% lower, which was also a record loss.

In New York, the Dow Jones lost almost 34% of its value in 2008, its worst year since 1931.

The year saw the credit crisis push several major economies into recession, with banks particularly badly hit - many requiring government bail-outs.

Whether the stock markets fall further in 2009 is a matter of debate.

Many investment strategists have written off any chance of a major rebound in at least the first six months of the new year, when company earnings could prove especially bleak.