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Citigroup could write down $34b, cut staff

Analysts also expect US’ largest lender to report $5.7b in fourth-quarter losses

NEW YORK – CITIGROUP could make as much as US$24 billion (S$34.3 billion) in write-downs and lay off 20,000 staff as part of a plan to cut costs and boost capital, CNBC has reported.

The report on its website dated Sunday said the plans would be unveiled tomorrow, when it would report its fourth-quarter results.

Citigroup is widely expected to report a quarterly loss and announce big layoffs, as it looks to cut costs in a tough business environment.

Many analysts believe Citigroup will also look to suspend or cut its dividend in a bid to save US$10 billion a year.

The job cuts represent about 10 per cent of Citigroup’s global workforce of 327,000 employees as at end-2006 and come on top of 17,000 layoffs announced in April last year.

Analysts polled by Bloomberg expect Citigroup to report a fourth-quarter loss of US$4 billion (S$5.7 billion), the first for the largest United States bank since its commercial real estate holdings plummeted in value during the early 1990s.

Citigroup will kick off what is expected to be a gloomy season for fourth-quarter bank earnings, after the widening sub-prime mortgage crisis in the US triggered write-downs and capital erosion at big banks.

Merrill Lynch is expected by analysts to report a loss of US$3.23 billion on Thursday, topping the record US $2.24 billion loss it reported in the third quarter.

Bank of America may report that fourth-quarter net income fell by 79 per cent to US$1.08 billion, the biggest drop in at least a decade.

Banks have not lost this much money, in relative terms, since the Great Depression, said New York University’s Professor Richard Sylla.

Citigroup, Bank of America and Merrill probably were profitable last year, earning about US$23 billion on a combined basis, even after the second-half write-downs.

But there may be more bad news in store for US banks, analysts said, particularly after American Express (Amex) said it was cautious about this year and was seeing negative credit trends in some markets.

If Amex’s clients, who tend to be relatively wealthy, are weakening, credit card lenders could find themselves writing off more assets.

‘The American Express announcement was very significant. We have to wait and see what happens,’ said Mr Michael Holland, founder of investment firm Holland & Co.

 

Source: REUTERS, BLOOMBERG NEWS (The Straits Times 15 Jan 08)

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