Citigroup Profitable in First Two Months of 2009

March 10, 2009 - 8:46 AM
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New York (AP) - Citigroup Inc. has been operating at a profit through the first two months of the year, according to a letter that the embattled bank's chief executive sent to employees.
 
In the letter sent Monday, CEO Vikram Pandit said Citi had an operating profit of $8.3 billion before taxes and special items through February. Pandit said the first-quarter performance so far has been the bank's best since the last time it recorded net income for a full quarter -- that was in the July-September period in 2007.
 
Provisions that could offset all or part of the operating profit include credit losses, write-downs and additions to loan-loss reserves. Pandit did not disclose the size of any potential provisions.
 
Citi has been among the hardest hit banks by the ongoing credit crisis and recession. It has been forced to take tens of billions of dollars in write-downs and loan losses since late in 2007 as the value of its investments plummet and more customers fall behind on repaying loans.
 
The New York-based bank has posted five consecutive quarterly losses, including a fourth-quarter loss of $8.29 billion.
 
During January and February, operating revenue was $19 billion, just $2 billion shy of the full-quarter average during 2008.
 
The letter was written to reassure employees as Citi's stock has taken a beating in recent weeks and as it has embarked on a plan that will increase the government's stake in the bank.
 
Citi shares closed Monday at $1.05, down 84 percent since the beginning of the year.
 
Late last month, Citigroup and the Treasury Department agreed on a deal that will give the government up to a 36 percent stake in Citi. The government, along with other private investors, will convert some of their $45 billion in preferred stock into common shares. If the maximum amount of preferred stock is converted, current common stockholders will see their ownership stake fall to about 26 percent.
 
That plan comes after the government provided Citi the $45 billion in capital in two installments late last year. Part of that $45 billion will be the capital converted to common stock. The government also previously agreed to cover a portion of losses on hundreds of billions of troubled assets and loans as Citi looks to right itself.
 
Government officials are drawing up contingency plans just in case Citigroup stumbles further and needs more support, according to a report Tuesday in The Wall Street Journal citing anonymous sources. The Journal said the discussions are preliminary and wide-ranging for possibilities that government officials do not expect to occur.
 
The stock conversion by the government and private investors is aimed at stabilizing and strengthening key capital ratios for the bank. Stabilizing a bank's financial strength has become vital in recent weeks as the government runs stress tests on banks to determine their long-term viability under various economic conditions worse than the current recession.
 
In the letter, Pandit said Citi has run its own stress tests for the bank at levels worse than those being used by the government. He said he is confident in the bank's capital position based on those tests.
 
Citi has been working in recent months to return to profitability. Among its plans, the bank is shedding assets and reducing staff to streamline operations. Citi has already announced a plan to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley.
 
Citi is also pursuing a plan to split its operations, separating the traditional banking businesses from the riskier operations that have been the primary driver of losses in recent quarters.