Subprime Writedowns, Credit Crunch Hit Citigroup Hard
The past year hasn’t exactly been smooth sailing for the nation’s largest bank. In its first-quarter earnings report, Citigroup posted a record loss of $5.1 billion, following losses on assets tied to the subprime mortgage market that cut $14.1 billion in value from its investment portfolio.
The $14.1 billion in write-downs included $7 billion related to subprime and alt-A mortgages; $3.1 billion in leveraged loans; $1.5 billion related to bond insurers; $1.5 billion in auction-rate securities; and another $1 billion related to commercial real estate, a hedge fund and structured investment vehicles, or SIVs.
The losses stemming to subprime mortgages have forced the New York-based bank to bolster its capital by selling $6 billion of preferred shares in a public debt offering. The offering is in addition to the $37 billion of capital Citigroup has raised since November to replenish its balance sheets from credit losses and massive subprime-related write-downs.
Meanwhile, as Citigroup builds up its loan reserves for similar problems in the future, other investment banks have begun the process of writing down the value of auction-rate securities held by clients. UBS is reportedly lowering the values of its clients’ auction-rate securities by as much as 30 percent.
The problem is that auction-rate securities were, as the headlines report day after day, often sold to investors as cash-alternative investments. As UBS’ clients - and others to follow - are now discovering, the write-downs will yield them far less than “money in the bank.â€
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â
