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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

CitiGroup $10 billion Devastating Quarterly loss - Still Just Tip of the Bad Debts Iceberg!

Companies / Banking Stocks Jan 15, 2008 - 10:34 PM GMT

By: Nadeem_Walayat

Companies Citigroup the United States second largest bank posted a record quarterly loss of $10 billion due to the continuing fall out from the subprime mortgage crisis that continues to depress US housing market as Adjustable Rate mortgages adjust to higher interest rates.


The sovereign wealth funds continued to swarm over the self destructing US financial and banking sector having pounced on citigroup to the tune of least $12 billions as Citigroup had written off $18 billion in US mortgage losses. The Singapore wealth fund snapped up 4% and the Kuwait Investment Authority at least 3% at favourable terms of fixed interest rate preference shares.

In the recent article Sovereign Wealth Funds - Saviours or Harbingers of Economic Apocalypse? , I highlighted the dangers of profitable revenue producing assets falling into the hands of foreign governments for the long-term ability of the USA and UK to survive economically and how this was part of a multi-pronged strategy to effect a change of the global balance of power and that the changes would be irreversible.

A large slice of Merrill Lynch was snapped up by the Kuwaiti's earlier in the week as it announced a doubling bad debts to $ 15billion, and likely before the end of 2008 we will again see a doubling of bad debts. As we can expect further write downs by citigroup going forward perhaps a tripling in bad debts by the end of 2008 to some $50 billions. So the expectation is of further capital to flow into the hands of sovereign wreath funds at rock bottom prices and hyper inflated rates of return.

Citi announced that the dividend would be cut from 54cents to 32cents per share with at least 4000 jobs to go.

The shares closed sharply lower at 26.85 and responsible for the sell offs across global stock markets as markets continue to attempt to discount the amount of future bad debt provisions across the financial sector and its impact on the rest of the economies. Citigroup has lost some 50% of its value over the last 8 months wiping some $130 billion off its market capitalisation.

As a sign of how far the crisis has yet to go, to date total global write downs are estimated at some $70 billion, which may just amount to 10% of the total eventual losses of some $ 700 billion. This definitely increases the risks of recession and the likely hood of near panic cuts in US interest rates to try and offset a severe downturn which would be on the cards at losses of even half the anticipated $700 billion write down.

Expect more bad news from Merrill Lynch on Thursday.

By Nadeem Walayat

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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