Citi loses almost $10 billion, slashes dividend

It was only a couple of months ago that bank executives were adamant that the dividend would not be cut. But they backtracked on Tuesday; the 41 percent reduction in quarterly payouts to 32 cents a share will save $5 billion a year but deprive that cash from shareholders.

“Banks are traditionally reluctant to cut dividends,” said Alfred Mettler, a finance professor at Georgia State University. “Now, we have enough precedence that makes it possible for other banks to slash their dividends without being questioned by their shareholders.”

Financial companies have been the highest dividend-paying sector in the stock market, but many — including Washington Mutual Inc., National City Corp. and the government-sponsored lenders Freddie Mac and Fannie Mae — have pared those payouts in recent months.

The losses also forced Citigroup to seek fresh capital again. The $12.5 billion it announced Tuesday includes $6.9 billion from the Government of Singapore Investment Corp. for a 4 percent stake. Other investors are Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former chief executive Sanford Weill and his family foundation.

Those convertible preferred shares, plus the $7.5 billion that Citi got in November from the Abu Dhabi Investment Authority in exchange for a 4.9 percent stake, come at a hefty price: $1.7 billion a year in new dividends it must pay for the high-yielding stakes.

The bank also is seeking to raise another $2 billion in preferred shares.

Separately on Tuesday, Merrill Lynch said it will receive a total of $6.6 billion from the Korean Investment Corp., Kuwait Investment Authority and Japan’s Mizuho Corporate Bank — besides the $4.4 billion it has already gotten from Singapore’s state-run Temasek Holdings.

Citigroup’s shares, which were trading around $55 a year ago, fell $2.21, or 7.6 percent, to $26.85 Tuesday, a five-year low. Several mutual funds, including Charles Schwab’s, have already bailed out of Citigroup to prevent their customers from losing money.

The loss for the quarter totaled $9.83 billion, or $1.99 per share, compared with earnings of $5.13 billion, or $1.03 per share, during the same quarter a year earlier. Citigroup’s revenue fell to $7.22 billion, down 70 percent from $23.83 billion in the final quarter of 2006.

Full-year net income for 2007 fell 83 percent versus a year earlier to $3.62 billion.

The biggest contributor to the $18.1 billion write-down in the fourth quarter was Citigroup’s bad bets on mortgage-backed bond instruments called collateralized debt obligations. That was significantly wider than the $6 billion write-down it took in the previous quarter, and bigger than the $8 billion to $11 billion it guessed in October that it would take for the fourth quarter.

Citigroup said as of Dec. 31, it had a total of $37.3 billion in direct subprime mortgage exposure, down from $54.6 billion three months prior.

It was not all bad news for Citigroup, which recorded record results in its international consumer, transaction services and wealth management segments. But the bank’s strengths were not nearly big enough to offset its weaknesses — a trend that could continue if the U.S. economy weakens.

Jeffrey Harte, an analyst at Sandler O’Neill, said sufficient capital should not be a near-term problem for Citigroup even as its credit quality continues to deteriorate. Goldman Sachs analyst William Tanona noted that Citi’s U.S. consumer businesses had accounted for 30 to 40 percent of Citi’s recent profits.

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