Citi Cites Mortgage Woes in Weak 3rd Quarter

Citigroup cited weak mortgage lending and higher-than-expected credit costs as factors in a 57% drop in its quarterly profit.

"This was a disappointing quarter, even in the context of the dislocations in the subprime mortgage and credit markets," CEO Charles Prince said in a statement.

He also said that Citi's fixed-income earnings, which include mortgage securities activities, were "well below expectations."

The company's third-quarter results included losses of $1.56 billion, pretax, on the value of subprime mortgage-backed securities that had been earmarked for future collateralized debt obligation issuance. That writedown also included some leveraged loans that had been warehoused for collateralized loan obligations.

Citi also reported losing $636 million pretax in fixed-income credit trading "due to significant market volatility and the disruption of historical pricing relationships."

Credit costs were also a factor in Citi's weak performance. Citi said that "increased delinquencies on mortgages and unsecured personal loans" added to a $278 million increase in net credit losses and a net charge of $1.3 billion to increase loan loss reserves.

On the positive side, Citigroup said that higher servicing revenue helped boost consumer lending revenue up 5% compared to the year-earlier period, driven by higher average loan balances. That growth also helped boost net interest revenue. The acquisition of ABN Amro Mortgage Group in March was a factor in those gains.

But expenses in consumer lending were also up, and Citi said that higher staffing related to collections contributed to the 37% rise in collections.

The type of financing used in leveraged buyouts has been a weak spot across the banking industry. While buyouts were hot earlier in the year, big banks have found it difficult to sell or securitize loan commitments they made in this area.

Citigroup said that it suffered $1.35 billion of pretax writedowns, net of underwriting fees, on funded and unfunded highly leveraged finance commitments. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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