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Citigroup and Bank of America Losses

January 16, 2009 By Chuck

Lots of news from Citigroup and Bank of America. Here is the information right from the news wires:

Bottom line: Both had large losses, both are now in the tax payers pocket even deeper as a result.

Citigroup(C)

REPORTS Q4 -$1.72 V -$1.31E, R $5.6B V $14.16BE
- Reports Q4 continuing ops EPS -$2.44
- Q4 Tier 1 capital ratio 11.8%  v 8.2% q/q
- Q4 Global Cards $4.61B v $6.23B y/y
- Q4 Total Consumer Banking $6.08B v $7.84B y/y
- Q4 Institutional Clients Group -$8.19B v $10.8B y/y
- Q4 Global Wealth Management $2.84B v $3.46B y/y
- Q4 North America -$2.32B v -$689M y/y
- Q4 Europe, Middle East and Africa $2.99B v -$1.56B y/y
- Q4 Latin America $2.68B v $3.64B y/y
- Q4 Asia $1.99B v $5.40B y/y
- Q4 Total Writedowns -$7.77B
- Q4 Private Equity and Equity investments -$2.5B
- Q4 SIV assets.write-downs of -$1.1B
- Q4 Alt-A mortgages.write-downs of -$1.3B
- Q4 Monoline exposure writedown -net interest$897M
- Q4 Write-downs on commercial real estate positions -$991M
- Q4 Write-downs sub-prime related -$4.6B
- Q4 Write-downs ARS related -$307M
- Q4 Net interest margin 3.07% v 3.13% q/q, 3.07% v 2.34% y/y
- Company notes it has trimmed 52,000 positions in 2008, incl 29,000 in Q4

CITIGROUP TO REORGANIZE INTO TWO OPERATING UNITS TO MAXIMIZE VALUE OF CORE FRANCHISE
-Company will realign into two businesses, Citicorp and Citi Holdings, to optimize the company’s global businesses for future profitable growth and opportunities. This structure will enable Citi to focus on driving the performance of its core businesses and, separately, on realizing value from non-core assets.
The strategic restructuring creates:
-Citicorp, which will focus on leveraging the competitive advantages of the companys globaluniversal bank in more than 100 countries, and,
-Citi Holdings, which will be made up of brokerage and retail asset management, local consumer finance and a special asset pool whose management will focus on tightly managing risks and losses, and maximizing the value of these assets.

CITIGROUP REACHES DEFINITIVE AGREEMENT WITH US GOVERNMENT ON LOSS SHARING PROGRAM, ISSUES $45B IN PREFERRED STOCK AND WARRANTS TO THE US TREASURY
- Covered pool of assets includes $301B of assets including loans and securities backed by commercial and residential real estate, consumer loans and other assets as agreed by co and US govt.
- Loss coverage period is five-years for non- residential assets, 10 years for residential assets.
- Citigroup First Loss Position $29B (as agreed on November 23,  2008), plus $1B in exchange for  excluding benefits from hedges, plus $9.5B existing loan loss reserve, for a total Citigroup first loss position of $39.5B.
- Second Loss Position Absorbed 90% by Treasury, up to its advance of $5B, and 10% by Citigroup.
- Third Loss Position Absorbed 90% by FDIC, up to its advance of $10B, and 10% by Citigroup.
- If covered losses exceed Citigroups first loss position plus approximately $16.7B(of which $15B will have been absorbed by Treasury and FDIC), the Federal Reserve extends a loan to Citigroup in an amount equal to the aggregate value of the remaining covered asset pool as determined in accordance with the loss sharing program (i.e. after reductions for dispositions, pay-downs, realized losses, etc.)
- Following the loan, as losses are incurred on the remaining covered asset pool, Citigroup is required to immediately repay 10% of such losses to the Federal Reserve
- Federal Reserve loan is non-recourse to Citigroup, other than with respect to the repayment obligation referenced above and interest on the loan. The loan is recourse only to the remaining covered asset pool which is the sole collateral to secure the loan   Interest accrues at OIS plus 300bps on the outstanding principal amount of the loan for the period between the date the loan is made through November 20, 2018 (which period may be extended by the Federal Reserve for 1 year)
- Loss sharing covers realized losses on the principal amount of the covered assets (e.g., charge-offs, dispositions and failure to pay principal, etc.)   Reserves when taken and marks when made are not covered but losses on those assets will be covered when realized   Loss sharing is determined on a portfolio basis (i.e., gains and recoveries relating to the covered assets are netted against covered losses across all assets in the portfolio)
- Fee for loss coverage is $7.059B of 8% cumulative perpetual preferred stock ($4.034B to Treasury and $3.025B to FDIC) and a warrant to Treasury to purchase 66,531,728 shares of common stock at a strike price of $10.61 per share

CEO PANDIT: RESULTS CLEARLY DISAPPOINTING, TOP PRIORITY IS RETURNING TO PROFITABILITY, HAS BEEN FUNDAMENTAL CHANGE IN MARKETS FOR FUNDING
- Significantly reduced capital in securities and banking business.
- Pledges to only take proprietary risk when it has a “clear advantage.”
- Retail banking is positioned for strong growth.
- The new Citicorp will have $1.1T in assets, 80% of earnings. Notes pro forma earnings of Citicorp would have been $10B in 2008.
- Virtually all writedowns will be held by Citi Holdings.
- Not in any rush to sell businesses.
- Intends to provide more transparency in the future.

CFO: COULD SEE ABOVE AVERAGE LOSSES FROM FIRST LIEN MORTGAGES FOR THE NEXT SEVERAL QUARTERS -
- Loss rates from credit cards are approaching historic highs.
- US retail bank deposits are up 5% q/q, international deposits -4% q/q (+1% ex FX)
- Used own bond spreads to estimate impact of its credit of fair value of liabilities

—–

Bank of America (BAC)

REPORTS Q4 -$0.48 V $0.08E, R $16.0B V $20.7BE, ROE -6.68% V 0.60% Y/Y; CUTS DIVIDEND TO $0.01/SHARE
- Q4 ROA -0.37% v 0.06% y/y
- Q4 Net interest margin 3.31% v 2.61% y/y
- Q4 Allowance for loan and lease losses $23.07B v $11.59B y/y
- Q4 Provision for credit losses $8.53B v $3.10B y/y
- Q4 Net charge-offs $5.54B v $1.98B y/y
- Q4 Total managed net losses $22.9B v $11.25B y/y
- Q4 Nonperforming assets $18.2B v $5.9B y/y

- Q4 Global Consumer and Small Business Banking Unit Rev $15.91B v $12.62B y/y, Efficiency ratio 44.91% v 44.15% y/y
- Q4 Global Corporate and Investment Banking Unit Rev -$265M v -$695M y/y, Efficiency ratio n/m% v n/m% y/y
- Q4 Global Wealth and Investment Management Unit Rev $1.98B v $1.77B y/y, Efficiency ratio  53.77% v  73.34% y/y

- CEO Notes: Fourth quarter results were driven by escalating credit costs, including additions to reserves, and significant writedowns and trading losses in the capital markets businesses. These actions reflect the deepening economic recession and extremely challenging financial environment, both of which significantly intensified in the last three months of 2008.

CEO LEWIS: MARKETS HAVE HIT A WALL, US IS CURRENTLY IN A SEVERE RECESSION, RECOVERY WILL TAKE A LONG TIME
- Lewis confirms that BoA went to regulators to say it could not close the Merrill merger without government help.
- Merrill loss “materialized” late in the quarter.
- US economic plans are working at a slower pace.
- Notes core businesses are operating quite well.
- Believes Congressional action is starting to stabilize the economy.

CEO: EXPECTS SEVERAL QUARTERS TO BE AT OR WORSE THAN Q4 RESULTS
- Says Countrywide and Merrill purchases contributed to market stability, Merrill assets deteriorated in Q4

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