Citi in a trance
With Citigroup announcing a $5.1 billion loss last quarter, the question is, was hiving off of its financial services and credit card division just a move to restructure or.... By vishal ingole
Banks and financial institutions falling
victim to the subprime mortgage crisis has become the order of the day. But despite a strong positive expectation banking giant Citigroup Inc. falling prey to sub-prime related write downs and credit costs for the second quarter in a row has definitely aggravated the prevailing discomfort in the banking industry. After posting huge $9.83 billion loss in the last quarter of FY07, Citigroup has registered losses worth $5.1 billion for the first quarter of FY08. The group’s banking division alone clocked losses to the tune of $4.48 billion. Earlier in March 2008, when Vikram Pandit, CEO, Citigroup announced the separation of its financial services and credit card division, the move was seen as an attempt to shuffle the organisational structure, but now it seems it might actually have some other motive.
Announcing the company’s first quarter results, Gary Crittenden, CFO, Citigroup expressed his concerns saying that credit card defaults and consumer financial products could drag the economy further by two years. Even the latest data from Federal Reserve’s Consumer Credit Report strengthens this concern. As of now total revolving debt burden on consumers (mainly comprising of credit cards) stands at a whopping $947.4 billion. This figure is close to what mortgage backed securities were riding on before the crisis erupted. And as is the case with mortgage backed securities – debts on credit cards are also converted into complex financial instruments. So, if consumers start defaulting on these debts this may well emerge as another mammoth financial crisis for the US and later on for the whole world.
Banks and financial institutions falling
victim to the subprime mortgage crisis has become the order of the day. But despite a strong positive expectation banking giant Citigroup Inc. falling prey to sub-prime related write downs and credit costs for the second quarter in a row has definitely aggravated the prevailing discomfort in the banking industry. After posting huge $9.83 billion loss in the last quarter of FY07, Citigroup has registered losses worth $5.1 billion for the first quarter of FY08. The group’s banking division alone clocked losses to the tune of $4.48 billion. Earlier in March 2008, when Vikram Pandit, CEO, Citigroup announced the separation of its financial services and credit card division, the move was seen as an attempt to shuffle the organisational structure, but now it seems it might actually have some other motive.Announcing the company’s first quarter results, Gary Crittenden, CFO, Citigroup expressed his concerns saying that credit card defaults and consumer financial products could drag the economy further by two years. Even the latest data from Federal Reserve’s Consumer Credit Report strengthens this concern. As of now total revolving debt burden on consumers (mainly comprising of credit cards) stands at a whopping $947.4 billion. This figure is close to what mortgage backed securities were riding on before the crisis erupted. And as is the case with mortgage backed securities – debts on credit cards are also converted into complex financial instruments. So, if consumers start defaulting on these debts this may well emerge as another mammoth financial crisis for the US and later on for the whole world.
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