Staring into the abyss:
Citigroup announced a steep cut in its stock dividend and another big investment by foreign investors on Tuesday after taking another big write-down related to subprime securities and posting a $9.83 billion loss for the fourth quarter.
Beginning what is expected to be a grim week for financial company earnings, Citigroup said it was writing down $18.1 billion because of soured mortgage-related investments.
As part of a plan to shore up Citigroup, the chief executive, Vikram S. Pandit, said the company would eliminate 4,200 jobs and cut its dividend by 41 percent, to 32 cents from 54 cents a share.
Citigroup also turned to wealthy foreign governments again and announced the sale of a $12.5 billion stake to the Kuwait Investment Authority and several others, including Prince Walid bin Talal of Saudi Arabia. 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 and raise questions about the company’s diversified business model.
First, the easy question (or maybe this is the hard question)- how many more of these write-downs can the securities firms withstand before we are no longer staring into the abyss, but are plunging headfirst? I am probably like most Americans, and this is something I simply do not understand.
Second the harder (or perhaps the easier) question- Where did the money go? Who profited? I am assuming that those who earned commissions writing the loans made some money on the deal initially, but how do we understand the losses from paper transactions.
Again, I am writing from a position of complete and total ignorance- I just understand that this is bad, bad, bad. So be gentle. But thorough.
*** Update ***
I added Calculated Risk to the blogroll, as it is one we will probably be following over the next few years.