Citigroup suffers record losses in subprime crisis
Markets plunge as US recession fears mount amid tumbling retail sales
The nightmare on Wall St hasn't gone away and in fact is intensifying fears around global markets that the US economy is hurtling towards a recession despite Fed hints of impending rate cuts
Wednesday January 16 2008
Global stock markets plunged yesterday as the fallout of the US subprime market drove US banking giant Citigroup into the biggest quarterly loss of its 196-year history.
Investors were further spooked by a dismal set of American retail sales data for December -- stoking up fears that the world's largest economy is heading towards a recession.
However, this has added fuel to rumours in the financial markets of an emergency rate cut over the coming days from the US Federal Reserve, America's central bank. The Fed's monetary policy committee's next scheduled meeting is January 29-30 and its chairman, Ben Bernanke, has already dropped strong hints that a rate reduction is on the way.
The Iseq Overall index sank 3.7pc yesterday as all 18 western European markets ended the session in negative territory. Among major markets, France's CAC 40 slid 2.8pc, the FTSE 100 in London dropped 3.1pc and Germany's DAX 30 fell 2.1pc.
As of mid-afternoon trade on Wall Street, the Dow Jones Industrial Average was off 1.5pc while the Nasdaq Composite was down 2.3pc.
Citigroup revealed yesterday that it posted a $9.83bn loss for the fourth quarter, hurt by $18.1bn of writedowns and related expenses to subprime debt, plus a $4.1bn increase in US credit costs.
As a result, the group said it was cutting its quarterly dividend by 41pc and raising at least $14.5bn to shore up its depleted capital base.
It also revealed that it was axing 4,200 jobs -- equivalent to 1.1pc of its 375,000 global staff. The group employs 2,200 people in Ireland.
The job cuts were much less than had been feared. Market speculation in recent weeks suggested Citigroup's new chief executive Vikram Pandit was planning to cut up to 10pc of the workforce to help turn the group's fortunes around in the wake of the departure last month of Charles Prince, his predecessor.
Almost $7bn of the $14.5bn fresh capital Citigroup is raising is coming from the government of Singapore. Other investors include the Kuwait Investment Authority (KIA), long-term Citigroup investor Prince Alwaleed bin Talal bin Abdulaziz of Saudi Arabia and former Citigroup chief executive Sanford Weill.
Leading credit-rating agency Standard & Poor's cut its rating on Citigroup's debt in the wake of the results to 'AA-' from 'AA', adding that it was considering downgrading the group's credit further.
The downgrade "takes into consideration that Citigroup's performance could be rocky in 2008 amid prospects for a continued difficult operating environment for US banks," S&P said.
Separately, US banking rival Merrill Lynch said it was getting a cash infusion of $6.6bn from three foreign investment funds, including Korean Investment Corp, KIA and Mizuho Corporate Bank.
This is the second round of fundraising Merrill Lynch has announced in the past month after losing billions on subprime-related investments.
Irish banking stocks were all sharply lower yesterday, with Bank of Ireland down 5.3pc, Anglo Irish Bank off 4.4pc, Allied Irish Banks closing 4.5pc lower, while Irish Life & Permanent slid 5pc.
- Joe Brennan
