Hot in the Citi

Citigroup Inc., whose ticker symbol is the admirably simple C, has also earned the dubious privilege of being introduced in news stories as “the bank that’s lost more than any other in the collapse of the mortgage market.” After losing one-third of their value so far this year, it is a bit difficult to describe Citi shares as a safe, conservative, dividend-paying, rock-steady, widows-and-orphans investment. Yet not too long ago many people thought of Citi in exactly those terms.Times have changed. Today Citi officials predicted the bank will have to take substantial additional writedowns and losses on consumer loans. Consider what Chief Financial Officer Gary Crittenden had to say on a conference call (keep in mind that in this context the word “marks” means “losses”): “We will continue to have substantial additional marks on our subprime exposure this quarter. We may continue to see the magnitude of the marks decline, as the exposures that we have have declined.”

Statements like this are carefully vetted by lawyers before they are made public. Note that Crittenden says losses “will” continue but their magnitude “may” decline. In other words, the only thing Citi can be certain about is that more losses are coming. Other banks have issued negative outlooks recently, but we don’t remember any others being quite so blunt. That leaves us with two possibilities. Either Citi has uniquely incompetent and unlucky managers – or other bankers are being less forthcoming about the degree of their own losses.

Oil prices fell more than $4 today, the biggest drop in almost three months, after China said it will raise fuel prices starting tomorrow. This sparked a decline in the energy sector, but we doubt it will last for long. Our strategy models are not indicating any changes so we will continue to hold all our open positions today.