Citigroup has set up an internal team of bankers, led by Richard Stuckey, to try to unwind its exposure to $43bn (£21bn) worth of securities related to sub-prime American home loans.
The establishment of the Sub-Prime Portfolio Group, announced yesterday via an internal memo, comes during one of the bank's worst-ever weeks, which began with the revelation that it would have to write down up to $11bn due to its exposure to sub-prime mortgage. The revelation led to the resignation of its chairman and chief executive, Charles Prince.
The world's largest bank also restated its third-quarter earnings, trimming them by $166m to $2.2bn. The credit ratings agencies Moody's and Fitch downgraded Citi due to uncertainty over possible further writedowns. Its chief financial officer, Gary Crittenden, was able to give little assurance to investors when he said on a conference call earlier this week that the estimated losses could get worse, depending on how the market develops over the next eight weeks.
The revaluations were based on the current market for bonds collateralised by millions of individual home loans. If the US housing market worsens over the coming months, Citi may have to take further financial hits. Bank of America cut its rating on the stock from "buy" to "neutral".
In the internal memo, Citi said it would immediately move the sub-prime assets into a separate portfolio, to be managed by the new team. "In the coming weeks, we will review our credit businesses to better align them with the future opportunity. We are a leader in these businesses and we believe they continue to represent a great opportunity for our institution going forward, including structured products."
Mr Stuckey was one member of the team that was parachuted in to sort out the mess at Long Term Capital Management, the massive hedge fund that imploded in 1998. He helped oversee the liquidation of $90bn worth of assets in an orderly way that minimised the impact on the wider financial markets.
The string of bad news has added to the woes at Citi, which has seen more than a third of its value evaporate this year. Some investors have called for the bank, the largest in the world with $2.35trn in assets, to be broken up.Reuse content