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Citigroup expected to report Q4 loss

"The American Express announcement was very significant. We have to wait and see what happens."

Michael Holland, founder of Holland & Co

Citigroup Inc is expected to report a fourth-quarter loss today, but investors will focus on everything else Citi has in the works, from raising billions of dollars in new capital to slashing more jobs.

The largest US bank by assets is looking to secure additional capital, which could come from sources such as the Middle East, a source familiar with the situation said. Reports have said Citi hopes to bring in US$8 billion to US$14 billion from a number of investors.

Citi is also expected to announce big layoffs as soon as this week, potentially more than 10 percent of its staff, as it looks to cut costs in a tough business environment.

Many analysts believe Citi will also look to suspend or cut its dividend in a bid to save US$10 billion in cash a year.

With news like that, the fact that analysts on average expect Citi to post a fourth-quarter loss of 88 cents a share before items may not seem quite as important.

"The earnings are relatively meaningless. People want to know where the company is moving after this quarter, and what kind of position Citi will be in to take advantage of an upturn, when it comes," said Michael Holland, founder of Holland & Co, which is looking at Citi shares.

Citi will kick off what is expected to be a gloomy season for fourth-quarter bank earnings, after the widening subprime crisis triggered writedowns and capital erosion at big banks.

Citi CEO Vikram Pandit, who took over the reins last month, faces difficult choices. The bank likely has many assets to write down, and Pandit probably wants to write down as much as possible to avoid paying for problems that were not under his watch.

In November, Citi said it could record an US$11 billion writedown of repackaged debt in the fourth quarter. Markets for those securities have worsened since, meaning the charges could be much bigger -- as high as US$15 billion to US$20 billion, analysts have said.

New capital can help solve the problem.

Citi said in late November it was selling up to 4.9 percent of itself to the Gulf Arab emirate of Abu Dhabi in a bid to shore up capital.

The Wall Street Journal reported on Friday that Saudi Arabian Prince Alwaleed bin Talal, Citi's largest individual shareholder, will inject new cash into Citi, and China Development Bank (國家開發銀行) may invest US$2 billion.

The investment could come in exchange for convertible bonds, the paper reported unnamed sources as saying, but a China Development Bank spokeswoman based in Beijing would not confirm the report.

The Financial Times reported the Kuwait Investment Authority may invest as much as US$2 billion to US$3 billion in Citi.

Wall Street firms hit by subprime-related losses have been turning to outside investors in droves.

Morgan Stanley said last month China would pump US$5 billion into it as the investment bank posted a fourth-quarter loss.

Merrill Lynch also said last month it boosted its capital base by as much as US$7.5 billion after selling a stake to Singapore state fund Temasek and asset manager Davis Selected Advisers. The Financial Times reported on Sunday that Merrill was looking for another US$4 billion in capital.

Citi is also expected to announce job cuts this week, as it braces for a slowdown in many markets. Citi had 327,000 employees as of the end of 2006 and last April announced 17,000 job cuts.

There may be more bad news in store for US banks, analysts said, particularly after American Express Co said it was cautious about this year and was seeing negative credit trends in some markets. If AmEx's clients, who tend to be relatively wealthy, are weakening, credit card lenders could find themselves writing off more assets.

"The American Express announcement was very significant. We have to wait and see what happens," Holland said.
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