Citigroup may report $11 billion revenue reduction in fourth quarter due to subprime write-downs

By Jennifer Lanning Drey

Portland, Ore., Nov. 5 - Citigroup Inc. may report as much as an $11 billion revenue reduction in the fourth quarter due to declines in the fair value of about $55 billion in U.S. subprime-related exposures, Citigroup chief financial officer Gary Crittenden said Monday.

The bank previously considered just $11.7 billion of the $55 billion in subprime-related exposures to be at risk of significant markdowns but now believes the other $43 billion is also at risk following a series of rating agency downgrades of subprime U.S. mortgage-related assets, Crittenden explained during a conference call held Monday.

The $43 billion is in the most senior tranches of CDOs backed primarily by subprime residential mortgage-backed securities as collateral.

"Our exposure to high-end, investment grade securities, which we believed had very little risk associated with them, has historically held up in value and hence they were termed 'super senior' and we did not consider this to be a significant risk for markdowns," Crittenden said.

However, once the ratings agency downgrades occurred, the values of the junior tranches were driven down, which increased the level of risk among the higher tranches as the subordination below them eroded, he said.

During the call, Crittenden stressed that the valuation of the super senior tranches is still likely to fluctuate and the final impact on the quarter will be dependent on how the market evolves in the next eight weeks.

The bank currently projects the impact of the markdowns will be an $8 billion to $11 billion revenue reduction.

Along with the fourth-quarter projections, Citigroup's board of directors also announced that the bank's chief executive officer, Charles Prince, has elected to retire from Citigroup. The board has designated a special committee to conduct a search for a new CEO. In the meantime, Sir Win Bischoff, chairman of Citi Europe, will serve as acting CEO.

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