Citigroup, the nation’s largest bank by market value, warned investors Monday that its third quarter income would be down as much as 60 percent on subprime loan write-offs, leveraged buyout costs, and weakness in its consumer banking business. The bank reportedly would take losses of $1.3 billion on securities backed by subprime loans, and write off an additional $1.4 billion for losses on loans linked to corporate mergers and acquisitions. Citi also said it would boost its loan loss reserves by about $2 billion.
Citigroup CEO Charles Prince said in a statement, “Our expected third quarter results are a clear disappointment. The decline in income was driven primarily by weak performance in fixed income credit market activities, write-downs in leveraged loan commitments, and increases in consumer credit costs.”
The banking giant said that results from the third quarter 2007, which wrapped up on Sunday, could likely be down as much as 60 percent from results in the same quarter a year ago. Citigroup expects to release earnings for the third quarter on October 15.
The announcement came the same day as a statement by Swiss bank UBS informing investors that it will write-off around $3.4 billion in loans related to its exposure in the U.S. subprime market. UBS said that it would likely report a quarterly loss for the third quarter, its first in nine years.
Citigroup did, however, offer a silver lining in its release. Due to improvements over the course of September, the company believes that the worst is behind it as “business performed at more normalized levels” in the month.
Wall Street did not punish Citigroup, a component of the Dow Jones Industrial Average, on Monday. In fact, in midday trading, Citi’s shares were up 1.5 percent as the stock market experienced a surge on the first day of fourth quarter trading, sending the Dow Jones average over 14,000.