Citi exposed to $60 billion in subprime loans - may need more cash

Citigroup, which posted another direct exposure to $29 billion in subprime loans and $38 billion to LBO loans (leveraged buy-out). If you count in their exposure to dubious-quality Alt-A loans the total is at close to $80 billion.

From Market Watch on Citi’s $5 billion quarterly-loss:

Citigroup Inc. reported Friday another oversized quarterly loss as the company wrote down about $12 billion of soured mortgage investments and other credit-related items while adding to reserves for further losses on consumer loans.

“Valuations of our subprime-related exposures in fixed-income markets and leveraged-finance assets have further declined and credit costs in our consumer-lending businesses have increased,” CEO Vikram Pandit said in a press release.

From Market Watch and Citi’s $60 billion in subprime exposure:

Citigroup Inc. still has more than $60 billion of exposure to subprime mortgages and loans used to pay for leveraged buyouts, despite the giant bank taking a $12 billion first-quarter write-down.

Citi said it had $29.1 billion of direct exposure to subprime mortgage securities at the end of March. That’s down from $37.3 billion at the end of 2007. The bank also has $37.7 billion of exposure to leveraged loans, down from $43.2 billion at the end of the fourth quarter.

Citi also reported that it has $18.3 billion of exposure to securities backed by Alt-A mortgages, which were offered to more creditworthy borrowers but required less documentation. That’s down from $22 billion at the end of 2007.

I would argue that the $18.3 billion in Alt-A loans are just as suspect and dangerous to the company as the subprime loans. While many subprime loans are made to homeowners with bad credit, the Alt-A loans were made to specuvestors with little or no documentation that will be unable to afford the new mortgage payments when these Alt-A loans reset or recast in the near future. At least subprime homeowners typically want to stay in their homes, amateur investors (a la Casey Serin) may just walkaway, take their credit lumps and call it a day.

I say lump it in there and call it $80 billion worth of bad mortgage exposure. Plus commenter Ann reports that Citi announced layoffs of 9,000 yesterday - at least their trying to conserve the cash they have left. Although they will most-likely need to raise additional capital to weather the storm.

Citigroup’s Tier 1 capital ratio — a closely watched measure of banks’ financial strength — stood at 7.7% at the end fo the first quarter. That was below Harte’s 8.1% expectation.
A Tier 1 ratio below 8% will probably fuel speculation that Citigroup needs to raise more capital again, Harte said.

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