Citigroup is expected to announce a series of drastic steps on Tuesday, including the elimination at least 4,000 additional jobs, a steep cut in its stock dividend and another big investment by foreign investors, in a bid to bolster its finances in the face of deepening losses.
Beginning what is expected to be a grim week for financial company earnings, Citigroup is likely to announce a write-down of $18 billion to $20 billion, the biggest yet by a major bank or Wall Street firm, according to a person briefed on the situation. Such a big loss, the result of soured mortgage-related investments, could wipe out the company’s profit for all of 2007 and plunge Citigroup into the red.
As part of a plan to shore up Citigroup, Vikram S. Pandit, the company’s chief executive, is expected to announce the start of a new round of job cuts that many analysts say will accelerate over the coming months. The first reductions, of about 4,000 positions, will come on top of 17,000 job cuts announced last spring.
At the same time, Citigroup is expected to turn to wealthy foreign governments again and announce on Tuesday the sale of a $12.5 billion stake to the Kuwait Investment Authority and several other big investors, including Prince Walid bin Talal of Saudi Arabia, people briefed on the situation said. In November, the company sold a $7.5 billion stake to a Middle Eastern fund, the Abu Dhabi Investment Authority.
The latest moves highlight the extent to which Citigroup’s capital position has weakened raise questions about the future of the company’s diversified business model.
“The board has been behind the ball, no doubt about it,” said Meredith A. Whitney, a banking analyst at CIBC World Markets, who has called on Citigroup to cut its dividend. “This is a company with serious capital shortfalls. The balance sheet should be the first thing that should be looked at for a bank, not the last.”
Shares of Citigroup have dropped more than 47 percent over the last year. They fell 50 cents on Monday to close at $29.06
Many investors have expected Citigroup to cut its dividend but the company’s board has resisted that step. Eliminating the divided completely would save Citigroup about $10 billion a year.
The details about additional layoffs, meanwhile, are uncertain. Mr. Pandit has been working on what he called an “objective dispassionate review” that might lead to a reorganization or other adjustments. For Citigroup, things may yet get worse. The company announced in December that it would bring tens of billions of dollars worth of securities held by structured investment vehicles onto its balance sheet. And as rising unemployment adds to the gloomy talk about a recession, Citigroup may face more losses on home equity loans, credit card debt and personal loans.
Such a possibility makes raising new capital vital. Prince Walid, who helped rescue Citigroup in the early 1990s, and Capital Research and Management, a money management firm that is the bank’s biggest shareholder, are being offered the chance to invest to avoid having their current stakes diluted, but it is unclear whether they will choose to do so.
In addition to Kuwait, the Government of Singapore Investment Company is also involved. A planned multibillion-dollar investment by China Development Bank fell through recently because of resistance from the Chinese government, according to a person briefed on the plan.
While Chinese investors have bought big stakes in Wall Street firms like Bear Stearns, the scuttled deal with Citigroup suggests there may be limits on how much the Chinese government is willing to invest in Western banking.
Some analysts said Mr. Pandit might have to raise more capital after the latest infusion. “Citigroup needs $20 to $30 billion” over the next year, said Christopher Whalen, the managing partner of Institutional Risk Analytics.
