Citigroup earnings details alarm investors

Citigroup dismayed investors with downbeat comments about its future profitability, as it warned that its mortgage customers were defaulting in higher numbers than expected and that parts of its investment banking business had shrunk permanently.

The financial conglomerate said it was abandon-ing a share buy-back prog-ramme while it worked to rebuild its balance sheet, which would take well into next year.

Although its quarterly results yesterday came in a touch ahead of the reduced expectations Citigroup had set at a profit warning on 1 October, analysts were alarmed by several of the new details revealed in the full earnings report.

In particular, a charge of $2.24bn to cover rising defaults by mortgage, credit-card and loan customers was worse than Wall Street had been expecting, and exposed the growing debt problems faced by many American consumers. It also suggested a decline in corporate credit quality.

"If corporate credit goes the way of consumer credit, Citigroup is going to have some big problems," said Jaime Peters, a banking analyst at Morningstar.

Citigroup had previously announced that it was writing down the value of its portfolio of mortgage-related debt instruments by $1.4bn, and of its portfolio of loans to private equity buyouts by $1.6bn, and taking a $636m hit from trading-desk losses. The 57 per cent drop in quarterly earnings was better than the 60 per cent fall expected since 1 October, and Citigroup hailed progress on cutting costs. Chuck Prince, the beleaguered chief executive, said that "any fair-minded person would say the strategic plan is working".

Citigroup said rebuilding its balance sheet would take into next year, when it would reconsider its buy-back programme. The bank has been among the worst hit by the debt market meltdown, and Gary Crittenden, its chief financial officer, said that some of the exotic mortgage-related debt products it traded may have fallen permanently out of favour.

Japan's Nomura said yesterday it would pull out of the US residential mortgage-backed securities market and cut a quarter of its US workforce.