Citigroup and Bank of America reported losses
Citigroup had moved up its earnings announcement, as it sought to placate anxious investors. Reports emerged early this week that Citigroup was accelerating moves to dismantle parts of its troubled financial empire. But some Wall Street analysts and investors questioned whether the plan, which included the announcement on Tuesday that it would split off its prized Smith Barney brokerage, goes far enough to address Citigroup's immediate troubles.
"We are setting out a clear road map to restore profitability and enable us to focus on maximizing the value of Citi, " it said in a statement with the earnings.
The bank also said that its head count had been reduced by approximately 29, 000 since the third quarter and approximately 52, 000 in 2008.
Citigroup said it posted $5. 6 billion in revenue, down 13% on a same quarter a year earlier, reflecting the "difficult economic environment and weak capital markets. " All regions suffered.
For the full year 2008, Citigroup reported a net loss of $18. 72 billion.
The company's stock has dropped by almost half in the last week, closing yesterday at $3. 83, down 70 cents, or 15% on the day.
Citigroup's dismantling plan comes after a stern regulatory warning it received in late November, when its rapidly deteriorating share price prompted the government to give it a second cash infusion, of $27 billion.
Citigroup's first cash infusion from the government came in October in a $25 billion capital injection from the TARP.
With its receipt of a second lifeline from the government in November, Citigroup began operating under what is known as open-bank assistance, which involves a loss-sharing arrangement devised by the FDIC and an investment by the Treasury typically reserved for deeply troubled institutions.
Defining the "core" and "noncore" businesses, with separate names and management teams, may set the stage for later spinning off Citigroup's stronger operations over time.
By reporting the two sets of businesses separately, Citigroup will make it easier for its investors to focus on its underlying results. Citigroup will still have to find buyers for the troubled businesses and assets it hopes to unload - a difficult task in this market environment.
In a move announced earlier this week that provides an immediate cash injection and a big accounting gain, Smith Barney is to become a joint venture with Morgan Stanley. Morgan Stanley paid $2. 7 billion to own 51% of the new entity and can buy the rest of the business in three years for a price to be set then. The combined brokerage will include some 20, 000 brokers and 1, 000 retail offices.
The spin-off was the first step in a strategy that now includes whittling Citigroup's financial supermarket into a core operation - including its global investment and consumer banking franchises as well as its private bank - and a group of noncore, loss-inducing business, according to the people close to the situation.
For Citigroup, the changes draw a somber curtain over the one-stop shop created in 1998 when the company's architect and former chief, Sanford Weill, merged the insurance giant Travelers Group and Citicorp, then the largest U. S. bank. The deal brought traditional banking, insurance and Wall Street businesses, like stock underwriting, under one roof.
But the company came under repeated fire from shareholders for lackluster results; its stock price has fallen more than 75% since it was formed.
Vikram Pandit took over Citigroup in December 2007 after the tumultuous tenure of Chuck Prince, the handpicked successor of Weill.
After a four-month "dispassionate review" of Citigroup's businesses, Pandit pledged to continue with those plans to keep the company intact and promised better management. He planned to shed more than $400 billion of assets over several years, not a matter of months.
But federal regulators pushed Pandit to move faster. Since at least last fall, regulators had been urging Citigroup to replace several directors and rethink its strategy.
When John A. Thain,
hogan cft, left, of Merrill Lynch and Kenneth D. Lewis of Bank of America announced their companies' merger in September, it looked as if Mr. Lewis had scored a coup. But now Bank of America is in need of more federal money to deal with Merrill's losses.
Bank of America's earnings were released just hours after the government reached an agreement early today to provide an additional $20 billion in support from its $700-billion financial rescue fund.
Overall for 2008, Bank of America posted a net profit of $4. 01 billion compared with net income of $14. 98 billion a year earlier.
The bank said earnings were driven reflected "the deepening economic recession and extremely challenging financial environment, both of which significantly intensified in the last three months of 2008. "
Merrill Lynch, which was bought by Bank of America last year, had a fourth-quarter net loss of $15. 31 billion, or $9. 62 per diluted share, "driven by severe capital markets dislocations. "
At Bank of America, net revenue during the quarter rose 19% to $15. 98 billion from $13. 45 billion a year earlier. The bank also said it would pay a dividend of just 1 cent for the first quarter.
In bailing out Bank of America early
today, the administration, the Federal Reserve and the Federal Deposit Insurance Corp. also agreed to participate in a program to provide guarantees against losses on approximately $118 billion in various types of loans and securities backed by residential and commercial real estate loans.
Bank of America had been pressing the government for help after it was surprised to learn that Merrill would be taking a massive fourth-quarter write-down, in addition to Bank of America's rising consumer loan losses.
The second lifeline brings the government's total stake in Bank of America to $45 billion and makes it the bank's largest shareholder, with a stake of about 6%.
The program is modelled after a larger one engineered to stabilise Citigroup as its stock price plummeted in late November, but it appears to have had limited success.
Under the terms, Bank of America will be responsible for the first $10 billion in losses on a pool of $118 billion in illiquid assets, including residential and commercial real estate and corporate loans, and that will remain on its balance sheet.
The Treasury Department and the Federal Deposit Insurance Corporation will take on the next $10 billion in losses. The Fed will absorb 90% of any additional losses, with Bank of America responsible for the rest.
In exchange for the new support, Bank of America will give the government an additional $4 billion stake in preferred stock. It has also agreed to cut its quarterly dividend to a penny, from 32 cents, accept a loan-modification program and put more stringent restrictions on executive pay.
With losses mounting in the financial industry, other banks may eventually feel compelled to turn to the government for assistance, and the program could be used for other big banks. Taxpayers could end up guaranteeing hundreds of billions of dollars of banks' toxic assets.
"The financial services sector still needs more equity,
north face coats for women, " said Frederick Cannon, the managing director at Keefe, Bruyette & Woods. "TARP was announced in mid-September and most of the initial decisions were based on the state of the economy then. The economy has gotten a heck of a lot worse. "
Government officials said that they did not have new money to allocate for this assistance, so they used funds that was already allocated from the $350 billion bailout fund for other banks or for future stabilisation programmes.
The officials said that even though Citigroup's stock had tumbled since November, that bank's stock price might not be the best indicator of whether the programme was working.
Kenneth Lewis, Bank of America's chief executive, had earned a reputation for taking big bets that helped transform NationsBank, a small lender, into a consumer powerhouse with bicoastal branches - and was often accused of overpaying. It snapped up Bank of America and took on its name,
airmax shoes sale, then followed with flashy deals for FleetBoston Financial in 2003 and then the credit card giant MBNA in 2006. That was followed by US Trust and LaSalle Bank of Chicago a year later.
Last year, Lewis's bank also bought Countrywide Financial Corporation, the troubled mortgage giant that has come to symbolize many of the excesses of the subprime mortgage era. That made Bank of America the biggest player in every major financial service but wealth advice.
As it turned out, more problems were lurking. In December, when executives at Merrill began tallying losses on its mortgage investments, they were found to exceed previous estimates. The write-downs will total between $15 billion and $20 billion, possibly its largest ever, according to two people who have been briefed on the situation, and include mortgage assets,
mbt footwear sale, commercial real estate and other credit investments.
When it notified Bank of America of such gaping write-downs, the bank became fearful it would not have the capital to cover them. The revelations, which came just weeks before the merger was expected to close, prompted Bank of America to ask the government for additional help.
Shortly before Christmas, Bank of America told regulators that it might walk away from Merrill because of mounting losses at the brokerage. But the regulators, concerned Merrill might founder, urged Mr. Lewis to press ahead. Given the severity of the situation, government officials said they needed to take immediate action to avert a systemic risk. The officials agreed to another capital infusion and said they would guarantee assets belonging to both companies.
The Merrill deal has not been easy for Lewis to digest. Clashes from combining the two strong cultures of each firm have complicated the merger. Merrill Lynch's 16, 000 brokers prided themselves on their loyalty to "Mother Merrill. " Analysts say Bank of America's managers are groomed like cogs in a giant money-making machine. UK Business Property specialises in commercial property in the UK, offering commercial agents important incentives to bring all their properties to the whole market.Topics related articles：
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