Citigroup Inc’s chief financial officer on Thursday warned that the US’ largest bank by assets would suffer more “substantial” writedowns on debt investments in the second quarter.
CFO Gary Crittenden also said that there will likely be more writedowns related to leveraged loans and bond insurers. He said that credit costs on the whole would be higher in the second quarter than in the first due largely to reserve builds in the mortgage portfolio.
Citigroup shares fell US$0.85, or 4.2 percent, to US$19.55.
Crittenden said Citi’s second-quarter writedowns on structured debt products known as collateralized debt obligations (CDOs), would be lower than they were in the first quarter. In the first quarter, Citigroup marked down the value of its CDOs by about US$3 billion. All told, the bank in the first quarter wrote down more than US$14 billion.
The executive spoke at a conference hosted by Deutsche Bank. His comments come on the heels of profit declines at three major Wall Street investment houses, and Fifth Third Bancorp’s decision to raise US$2 billion in capital. Futures and options broker MF Global Ltd has also warned that tight credit spreads will weigh on its fiscal first-quarter earnings.
Crittenden added to investors’ worries by suggesting that the credit markets — while perhaps not as volatile as they were in March when Bear Stearns Cos teetered on the brink of insolvency — remain tight.
Credit spreads for bond insurers, particularly for companies such as Ambac Financial Group Inc, have been widening significantly over the past few days, he said.
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