Citigroup Inc. said losses in its consumer loan portfolio could rise $1 billion to $2 billion each quarter from now through the first half of next year, according to chief executive Vikram Pandit's speech notes from his company's town hall meeting Monday.
John McDonald, an analyst at AllianceBernstein Holding LP's Bernstein Research, alerted his clients to the disclosure Tuesday and wrote in a report that the notes, released on Citi's Web site, reveal "buried" details about its expectation that consumer credit losses will be substantially higher.
For the third quarter, Citi posted $4.6 billion of consumer credit losses in its third quarter; the guidance in the speech notes suggests losses on the portfolio could reach $10.6 billion by the second quarter.
A Citi spokeswoman would not discuss Mr. McDonald's report. She referred other questions to the 13 pages of speech notes released on the company's site.
Mr. McDonald cut his price target on Citi shares by nearly half, to $11 a share, in response to the loss expectations. He widened his fourth-quarter loss expectation by 20 cents, to 61 cents.
Citi also revealed in Mr. Pandit's notes that it plans to change its accounting for a large portion of its risky, written-down assets. It will move about $80 billion of the assets from its trading portfolio to either the held-for-investment, held-to-maturity, or available-for-sale categories on its balance sheet. Mr. Pandit said the realized losses on the loans would be higher than what the markdowns already reflect, according to the notes. The accounting change is meant to reduce "the earnings volatility that these assets could pose" and to allow Citi to benefit from a return on equity from any upside to the assets. Mr. McDonald said the $80 billion would represent most of Citi's $88 billion of risky collateralized debt obligations, leveraged loans, mortgage securities, and auction-rate securities. Once the assets are moved out of the trading portfolio, any future writedowns would not follow through Citi's income statement unless it sold them or recognized an other-than-temporary impairment charge against them, he said. Citi would still have to write down $3.5 billion on the assets in its fourth quarter when it makes the accounting change, he estimated. On Tuesday Citi's shares fell 6% to $8.36, though at one point they were below $8 a share, their lowest point since 1995, according to Bloomberg News. — Dow Jones
