Citigroup Inc. (C) is lifting the curtain on the $45 billion in taxpayer capital it received, saying it plans to use $36.5 billion to fund U.S. mortgage loans and assist credit card holders and businesses.

In the first of four quarterly reports, Citigroup said the money it received from the U.S. Treasury’s Troubled Asset Relief Program (TARP) will not fund advertising, marketing, lobbying, compensation and bonuses. Nor will it used to pay the company’s dividend.

Citigroup also said it created a special committee that will approve and track how the company uses TARP money.

As of the fourth quarter of 2008, the $36.5 billion has been approved for these initiatives:

• $25.7 billion for U.S. residential mortgages
• $5.8 billion for credit card lending
• $2.5 for personal and business loans
• $1.5 billion for commercial loan securitization
• $1 billion in originating student loans through the Federal Family Education Loan Program

Citigroup has three goals with TARP capital: To help expand available credit for consumers and businesses; restore liquidity and stability to the capital markets; and support the recovery of the U.S. economy.

“Americans from all walks of life are facing real economic hardship, and Citi must do whatever we can to help them. Our responsibility is to put TARP capital to work quickly, prudently, and transparently to support U.S. consumers, businesses and our communities during these challenging times,” Citi Chief Executive Officer Vikram Pandit said in the report. 

Since receiving TARP money, many U.S. banks have been mum on their plans to spend it, spurring heavy criticism from government officials, investors and the media, including Money Morning’s investigative series on TARP transparency.

Money Morning’s ongoing investigation demonstrated that billions in U.S. bank rescue funds are financing buyouts worldwide – instead of lending at home. Some of those buyouts deals are being done in markets as far away as China. Meanwhile, credit remains tight here in the U.S. market, a situation that could be alleviated only if the banks made the bailout money available to consumers in the form of loans.

Citigroup’s report – and promise of another for each quarter – takes a lot of pressure off Pandit and the rest of the company’s board. And hopefully, it will put pressure on other TARP benefactors to prove they are putting it to good use.

In its latest investigative offering, The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings? And what’s the plan for the rest?
According to The AP, none of the banks provided specific answers. Some banks actually admitted that they simply didn’t know where the money was going.

News and Related Story Links:

• Citigroup:
  Citi Issues First Quarterly Progress Report on Its Use of Tarp Capital

• Money Morning Investigative Report on the Bank Bailouts (Part V):
  U.S. Banks Refuse to Detail How They’re Spending Federal Bailout Money.

• Money Morning Investigative Report on the Bank Bailouts (Part IV):
  Banks That Got $188 Billion in Bailout Money This Year Paid Out $1.6 Billion to Top Execs Last Year.

• Money Morning Investigative Report on the Bank Bailouts (Part III):
  Billions in U.S. Bank Rescue Funds are Fueling Buyouts Worldwide – Instead of Lending at Home.

• Money Morning Investigative Report on the Bank Bailouts (Part II):
  Billions in Bank Rescue Funds are Fueling Buyout Deals, and not the Increase in Loans That Would Help Ease the Financial Crisis.

• Money Morning Investigative Report on the Bank Bailouts (Part I):
  Foreign Bondholders – and not the U.S. Mortgage Market – Drove the Fannie/Freddie Bailout.

The board of directors of Citigroup Inc. (C) will meet today to look at beleaguered banking giant’s options after its shares hit a 15-year low, and speculation is escalating that it will have to look at a break-up, spin-off or sale of at least part of the bank.

Citi’s shares have plunged 50% this week – including 26.4% yesterday, when they dropped $1.69 each to close at $4.71. It’s the first time since 1994 that the shares closed below $5.

Citigroup, once the biggest U.S. bank with a stock-market value of $274 billion at the end of 2006, dropped yesterday to about $26 billion, slipping to the last spot after Minneapolis-based U.S. Bancorp (USB) in a list of the Top 5 U.S. banks as measured by market value. Neither a plan by Chief Executive Officer Vikram S. Pandit announced this week to cut costs by shedding 52,000 jobs, nor an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal, a longtime Citigroup investor, seemed to allay investor fears that the bank could stop the year-long run of losses that now totals $20 billion.

“Investors right now aren’t convinced that we’re done seeing dead bodies on the Citigroup balance sheet,” William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee, told Bloomberg News. “That’s what the sell-off is, concern over more and more losses over the next couple of quarters.”

Citigroup spokeswoman Christina Pretto declined to comment on the board meeting. She reiterated a statement made by the New York-based company earlier this week that it has “a very strong capital and liquidity position and a unique global franchise.” Citigroup shares
were up 88 cents at $5.59 in German trading today, Bloomberg reported.

Including the $25 billion infused as part of the U.S. Treasury Department under the $700 billion Troubled Asset Relief Program (TARP), the company has at least $50 billion of capital in excess of the amount required by regulators to qualify as “well capitalized.” Capital is the cushion banks must keep on hand to absorb losses and protect depositors.

Bank stocks all took hits on concerns a global recession may deepen. JPMorgan Chase & Co. (JPM), the biggest U.S. bank, fell 18% to $23.38, while No. 2 Bank of America Corp. (BAC) declined 14% to $11.25 and Wells Fargo & Co. (WFC) fell 7.7% to $22.53. U.S. Bancorp fell 6.4% to $22.12, Bloomberg said.

After yesterday’s market close, Ladenburg Thalmann Financial Services (LTS) analyst Richard X. Bove of sent out a research note reiterating his “Buy” rating for Citi, arguing that the bank has positive net free cash flows, a strong capital base, and a diversified business base. In the end, Bove says, "cash flows are all that matter," and that it would "take a Depression every bit as large and long as the 1930s debacle to shake this company’s viability … I would be a buyer of this stock.”

Bove is considered one of the top banking analysts, and has consistently made  the correct calls about the crisis. It remains to be seen if he’ll be right this time.

Citi this week agreed to buy back $17.4 billion of assets remaining in a series of funds known as structured investment vehicles, or SIVs, after it previously agreed to guarantee the liabilities in those funds.

In a separate story Wednesday, Wall Street banking analyst David Trone said that he expects higher credit costs and additional losses to force Citi to take $3 billion in write-downs in the year’s final quarter, a realization that prompted him to boost his quarterly loss estimate for the company and cut his target price for the stock.

“The key question is whether management will be able to continue to find buyers for business units, which is necessary to fortify the capital base against further credit losses and write-downs,” Trone, an analyst with Fox-Pitt Kelton Cochrane Caronia Waller, wrote in a research note to clients.

Fox-Pitt boosted its quarterly loss estimate for Citigroup from its prior projection of only 8 cents a share all the way to 79 cents a share. The brokerage then cut its profit estimate for 2009 from its earlier estimate of 69 cents per share all the way down to 28 cents, Reuters reported.
Trone, who rates Citi shares as performing “In Line” with the general market, cut his target price on the shares from $20 to $16. From Tuesday’s closing price of $8.36 a share, even that lower target price would represent a return of 91%.

Worries about Citigroup’s problem assets will continue to weigh down investor confidence, Trone wrote. Thus, while Citi is definitely a “cheap” stock by one key measure, it isn’t necessarily a bargain.

“Citi trades below tangible book, although we believe this is at risk given still-large problem asset exposures,” Trone wrote.

Citi said it’s moving the structured investment vehicle assets into a portfolio of assets held for sale. The transfer allows the SIV funds to fully repay maturing debt obligations. It will be accounted for as a “cashless” transaction, since the funds were essentially already on Citi’s balance sheet. In fact, the assets will be labeled as being “available for sale” basis, meaning changes in their value will affect the company’s balance sheet equity – but not its earnings, Reuters reported.

Back in December, Citigroup agreed to support the SIVs, which at the time held roughly $49 billion of assets. At one point, the bank’s SIVs were actually “off-balance-sheet” entities, holding roughly $100 billion in assets.

A SIV is a fund that borrows money by issuing short-term securities at a low interest rate and then lends that money by purchasing long-term securities at higher rates of interest. If managed correctly, fund investors can make a profit from the difference.

SIVs proliferated, and were in widespread use by investment banks and other financial institutions. But they ran aground when the credit crisis caused the demand for short-term bonds and commercial paper to evaporate. SIVs saw the value of their holding plummet, forcing institutions such as Citi – which had been operating the funds as off-balance-sheet funds – to prop them up with financial support.

This is the latest move Citigroup – one of the hardest-hit by the worldwide financial crisis – has been forced to make as it struggles to get back into the black. Citi has notched losses in each of the past four quarters, including a $2.8 billion loss in the third quarter, and has taken in excess of $40 billion in write-downs.

On Monday, Citi unveiled plans to cut more than 50,000 jobs in the “near term” and slash expenses by 20% to preserve capital as it faces a global slowdown that’s expected to push well into 2009. The cuts are on top of the 23,000 jobs eliminated so far this year and are part of CEO Pandit’s plans to whittle the bank’s work force down to 300,000. By the time Pandit puts down the corporate-cost-cutting machete, he’ll have lopped off about 20% of the company’s work force.

At its peak at the end of 2007, Citigroup had a work force of 375,000.

Just last week, as Money Morning reported, Citigroup announced the release of 10,000 employees, and said it was boosting interest rates an average of 3% for about one-in-five of its credit card holders.

News and Related Story Links:

• Bloomberg News:
  Citigroup Board Said to Weigh Options as Stock Drops.

• Business Week:
  Citigroup’s Worries Mount.

• Reuters:
  Citigroup says buying back remaining SIV assets.

• Reuters :
  Citi to write down $3 billion in fourth quarter: Fox-Pitt.

• Wikipedia:
  Structured Investment Vehicles (SIVs).

• Yahoo! Finance:
  Citigroup acquiring $17.4 billion in SIV assets as it winds down the troubled funds.

• Money Morning Hot Stocks Feature (Installment VII):
  Hot Stocks: Citigroup to Buy Back Billions in SIV Assets, May Face Another Write-Down.

Citigroup Inc. (C) today (Monday) unveiled plans to cut more than 50,000 jobs in the “near term” and slash expenses by 20% to preserve capital as it faces a global slowdown that’s expected to push well into 2009.

The cuts are on top of the 23,000 jobs eliminated so far this year. Chief Executive Officer Vikram Pandit plans to whittle the company’s workforce down to 300,000. By the time Pandit puts down the machete, he’ll have lopped off about 20% of the company’s headcount since Citigroup’s peak.

Just last week, Citigroup announced the release of 10,000 employees in addition to hiking interest rates an average of 3% for about one-in-five of its credit card holders. 

Since the subprime market caved in last year, bank and brokerage firms around the world have shed nearly 160,000 jobs, Bloomberg reported. Citigroup’s plan to let go 50,000 is the largest workforce reduction in the U.S. financial industry since it first started to unravel.

Since the crisis started in June 2007, Citigroup’s shares have dropped like an anchor, falling more than 83%. 

Still, that’s not enough to shake Pandit’s confidence that his executions will produce results and redeem the company’s stock. Last week, Pandit and another top manager scooped up about 1 million shares between the two of them. Pandit bought 750,000 shares at prices between $8.92 and $9.45, Dow Jones reported.

In Citigroup’s presentation, the company pointed out that it has the lowest exposure to U.S. consumer mortgage market of the country’s top four banks. Citigroup has $218 billion in U.S. mortgages, Bank of America Corp. (BAC) has $461 billion, Wells Fargo & Co. (WFC) has $340 billion, and JPMorgan Chase & Co. (JPM) has $302 billion. 

Other banks are expected continue cutting jobs. The London Times reported over the weekend that JPMorgan is planning to cut thousands. Goldman Sachs Group (GS) is planning to cut 10% of its workforce.

Fidelity Investments, the world’s largest mutual fund manager, plans to shed 1,700 jobs in the first quarter – in addition to the 1,300 it cut last week.

News and Related Story Links:

• Bloomberg:
  Citigroup Chief Pandit to Reduce Headcount by 50,000

• Citigroup:
  Town Hall Meeting – Nov. 17, 2008

• CNNMoney.com
  Citigroup execs buy large chunk of firm’s stock

• MarketWatch:
  J.P. Morgan plans thousands of job cuts: report

Ajay Banga, Citigroup Inc.’s (C) Asia-Pacific chief said yesterday (Wednesday) that his company would not sell its stake in India’s Housing Development Finance Corp. (HDFC), but did not comment on reports that the largest U.S. bank is about to sell its back-office unit to Tata Consultancy Services Ltd. (TCS).

"India is a very critical growth market for Citi," Banga told India’s Mint in an interview published yesterday. "We have been retaining profits locally and investing in India. We have also moved capital to India where necessary."

As Citi struggles with mounting subprime losses, it becomes increasingly likely that the banking giant will divest some of its operations in an effort to streamline operations and generate fast capital. But Banga made it clear that selling its 11.74% stake in HDFC was not an option.

 "No. We have no intention to do that," he said. "HDFC is an outstanding institution and we have no plan whatsoever to divest our stake. It has been a great investment for our shareholders."

The rapid growth of India’s economy, as well as a new focus on infrastructure development, has made the nation a premier destination for investment – a fact that has not been lost on the besieged Citi. [Please click here for a related story on emerging market investment growth in today's issue of Money Morning.]

"[Those prospects] fit our product and franchise capability. We have faith in India’s growth," Banga told Mint.

Banga did not comment on recent reports that Tata Consultancy Services is close to buying Citigroup Global Services, Citi’s back-office unit, for $500 million to $550 million.

The fact that India’s top software exporter has expressed interest in buying a branch of Citigroup’s operations, highlights the growing desire for foreign firms to expand globally, as well as the flood of new takeover opportunities brought about by low valuations.

"It’s a good time for Indian companies who want to acquire U.S. [business process outsourcing groups]… as valuations have corrected significantly," Anurag Purohit, Vice-President of Religare Securities, told the Financial Times.

India’s business process outsourcing (BPO) industry has grown by more than 35% over the past three years, the FT said. Export revenues are expected to reached nearly $11 billion in the last ten years and are expected to hit $50 billion by 2013, according to Nasscom, India’s information technology industry lobby.

Citigroup Global Services has more than 60 million customers throughout Asia, Europe, Africa, and North America. Its addition, the deal would bring more than 11,000 employees to TCS’ existing BPO team of 8,000.

News and Related Story Links:

• Money Morning:
  Bank of America, Citigroup Spark Glimmer of Hope for Troubled U.S. Banking Industry

• Reuters:
  Citi exec says not selling stake in India’s HDFC

• Financial Times:
  Tata sets sights on Citi Global Services

Citigroup Inc.’s (C) highly anticipated first-quarter earnings missed analyst’s expectations, as the largest U.S. bank posted its second straight loss and announced it will cut 9,000 jobs this year.

More than $16 billion in write-downs and higher consumer credit costs caused the company to record a loss of $5.11 billion, or $1.02 a share, compared with a profit of $5.01 billion, or $1.01 a share, a year earlier. Revenue fell 48% to $13.22 billion.

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Reuters analysts expected an average loss of 96 cents a share and revenue of $14.35 billion.

"This is the quarter they get to clear the decks," Arthur Hogan, chief market analyst at Jefferies & Co. in Boston, told Reuters. "(Chief Executive Officer) Vikram Pandit is coming in and making pretty big changes, and that’s what he gets to do."

But so was the fourth quarter, with the first 4,200 job cuts.

Pandit, who assumed CEO duties in December, said the company’s financial results "reflect the continuation of the unprecedented market and credit environment and its impact on our historical risk positions."  

Despite Citigroup’s loss, its stock rose more than 6% by mid-morning trading today (Friday).

Financials’ Earnings

Citigroup’s earnings cap a week that’s seen many of the nation’s biggest financial firms post mixed, though fairly cathartic, results.

On Thursday, Merrill Lynch & Co. (MER) posted its third consecutive quarterly loss – $1.96 billion, or $2.19 a share – and announced 3,000 job-cuts. 

On Wednesday, JPMorgan & Chase Co. (JPM) reported profit of $2.37 billion (or 68 cents a share), more than a 50% drop from $4.79 billion (or $1.34 a share) from a year earlier.

On Monday, Wachovia Corp. (WB) beat estimates with a first-quarter loss of $350 million. Washington Mutual Inc. (WM), however, reported a $1.1 billion loss.

Bank of America Corp. (BAC) will release its earnings Monday, and expectations are low.

"Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress," JPMorgan CEO Jamie Dimon said Wednesday.

News and Related Story Links:

• Reuters:
  Citigroup posts $5.1 billion loss on writedowns

• Citigroup:
  Citi Reports First Quarter Net Loss of 5.1 Billion, Loss Per Share of $1.02

• Money Morning:
  Merrill Misses Expectations, Thain’s Mettle to be Tested

• Money Morning:
  JPMorgan Chase Posts 50% Profit Drop, Predicts ‘Weak’ Markets ‘Through Remainder of Year or Longer’

Citigroup Inc. (C) stock hit its lowest price level in almost a decade yesterday (Tuesday) after analysts at two different Wall St. firms lowered their respective outlooks for the beleaguered bank.

At Merrill Lynch & Co. Inc. (MER) analysts expect another large write-down for Citi due to subprime related assets. Citing "continued deterioration in U.S. residential and commercial mortgage markets, corporate debt markets, and key investment-banking categories," analysts Guy Moszkowski and M. Patrick Davitt lowered their outlook for Citigroup in a research note.

"In particular we are forecasting another very large write-down of Citi’s subprime-related exposures," the analysts wrote, DowJones reported. "This is consistent with our view of the company’s excess-capital-raising exercise."

Goldman Sachs Group Inc. (GS) analyst William Tanona also issued a note lowering his previous first quarter profit estimate to just 15 cents per share. He stated the downgrade was due to a "miscalculation in our model," Bloomberg News reported.

Speaking at a private-equity conference in Dubai today, the head of Dubai International Capital LLC expressed doubts that the billions Citigroup has already received from foreign investors would be adequate.

Citigroup has already received cash infusions totaling $30 billion from a variety of sovereign wealth funds including Abu Dhabi, Kuwait, Singapore and Saudi Prince Alwaleed bin Talal.

"It will take a lot more than that to rescue Citi and other financial institutions," said Sameer al-Ansari, the chief executive officer of Dubai International.

But citing an unnamed source, Reuters reported that Citigroup has adequate cash reserves and is not currently seeking additional outside investments.

Last year, Citi was the worst performing stock in the 30 blue-chip securities included in the Dow Jones Industrial Average. In 2008, the shares have dropped almost 25% year to date.

Shares closed at $22.10 after dropping 99 cents, a 4.29% decline, yesterday.

News and Related Story Links:

• CNNMoney.com:
  THE RATINGS GAME: Merrill Cuts Citi Profit Outlook On More Expected Charges

• Bloomberg News:
  Citigroup May Need Cash as Losses Mount, Dubai Says

• Reuters:
  Citigroup confident in capital levels – source

To avoid a fire sale of illiquid assets, Citigroup Inc. (C) was forced to suspend investor withdrawals from CSO Partners, a hedge fund that focuses on corporate credit.

"We have temporarily suspended redemptions of all shares of CSO to stabilize the fund and allow time to address its funding needs to meet anticipated obligations," Citigroup spokesman Jon Diat said in a statement.

CSO first ran into trouble last November, The Wall Street Journal reported, when it sought to invest a sizeable amount of its assets in a German media company. The Journal did not name the company in question. CSO head John Pickett later tried to rescind the deal, but ultimately the fund was forced to buy the debt at face value even though the value had already dropped to 86 cents to 93 cents by that time, The Journal reported.

Diat stated that Pickett resigned in December.

It is not unusual for hedge fund managers to suspend redemptions in a troubled fund. Such provisions are typically allowed for in the investment documents. However, it is unusual for a fund with the assets and clout of Citigroup behind it to have to resort to such drastic measures.

"If they are invested in illiquid assets, chances are they cannot get out an equivalent amount of money investors are demanding without materially damaging the portfolio," Ferenc Sanderson, senior hedge fund analyst for Lipper Inc., a unit of Reuters Group PLC, told Reuters.

"Even having a big name and a big brand doesn’t leave investors immune to potential issues when they try to redeem," Sanderson added.

Citigroup has already invested $100 million in the fund and it seeking additional funding options.

Citigroup shares dropped 31 cents [a 1.20% decline] to close at $25.43 in Friday trading.

News and Related Story Links:

• Reuters:
  Citigroup bars investor exits from hedge fund

• CNNMoney.com
  Citigroup Halts Redemptions From $500 Mln CSO Hedge Fund

Year to date, shares of the largest U.S. bank by assets, Citigroup Inc. (C) have shed more than 10% of their value, but some investors still think the beleaguered bank is a smart investment.

Pacific Investment Management Co., more commonly known as PIMCO, and Calvert Asset Management Co. find the bank’s corporate bond yields attractive, Bloomberg reports. The spread on Citi’s bond compared to U.S. Treasuries reached a 272 basis point high at the end of January. Although the spread has narrowed slightly over the past weeks, it is still historically high.

"The fact that the banking sector has attracted fresh capital in the last couple of months is huge,” Mark Kiesel, an executive vice president at Pimco who oversees $158 billion of corporate bonds from Newport Beach, California, told Bloomberg. "We’ve been playing defense for the better part of two years, and the question we’ve been asking ourselves is when to go on offense. In the banking sector, we’ve started to do that."

PIMCO has been overweighting bank bonds relative to benchmark indices due to a market that is "too bearish" according to Kiesel. Renowned PIMCO Total Return Fund manager Bill Gross has also gone on record stating Citigroup, along with Bank of America Corp. (BAC) and Wachovia Corp. (WB) were "appealing".

"They’ve cheapened up to the point where there’s fair value," Gregory Habeeb, who manages $8.6 billion of fixed-income investments at Bethesda, Maryland-based Calvert. "You’re being compensated. I’m not saying there’s not risk there, but at least you’re collecting yield."

News and Related Story Links:

• Bloomberg:
  Pimco Shows Alwaleed Isn’t Only One in Love With Citi

• Money Morning:
  Citigroup: Why This Turnaround Play Has Legs – Big Ones

Just six weeks after he took the helm of the biggest U.S. bank – and only one week after Citigroup Inc. (C) reported a $9.83 billion quarterly loss – the embattled lender granted newly minted Citi Chief Executive Officer Vikram Pandit nearly $27 million worth of stock and 3 million stock options, according to regulatory filings and media reports.

According to a filing with the U.S. Securities and Exchange Commission, Citi awarded Pandit 1.095 million shares of stock as part of his executive-compensation plan. It was part of an executive-officer incentive plan that Citi adopted in 1999, according to the Reuters news service.

Citigroup said Pandit, 50, also received options to buy 1 million shares at $24.40 each, 1 million shares at $30.50 each, and 1 million shares at $36.60 each. Each of these awards vests in four equal-sized annual installments. The higher exercise prices carry respective 25% and 50% premiums over Citigroup’s closing share price on Jan. 22, the day the options were granted.

Citigroup shares ended the week at $26.64. At that price, the stock was 52% from their 52-week trading high of $55.55.

Although Pandit’s options aren’t vested – and can’t be exercised – at Citi’s mid-afternoon trading price of $28.28 yesterday (Thursday), the first block of options had a paper value of $3.88 million – taking the current value of his compensation package up over $30 million.

The stock award constitutes Pandit’s first direct stake in Citigroup shares, the filing shows. Citigroup acquired his Old Lane Partners LP hedge fund firm last summer for about $800 million.
Citigroup also awarded stock, options or both to more than two-dozen other senior executives and directors, other SEC filings on Thursday show. It is expected to disclose 2007 compensation for top executives in a proxy filing later this year.

Although stock awards and stock-option grants often arouse the ire of investors and of shareholder-activist groups, management experts say such components of the compensation package are crucial for two reasons:

• First, they align the financial interests of the CEO and other top executives with the interests of the company’s shareholders: Both want the company to perform well financially and want the share price to rise.
• And, second, by making the stock-and-option grants vest in increments over a multi-year stretch, the executive has a long-term stake in the company’s success – and is tied to the company for a longer period of time.

Pandit became chief executive after his CEO predecessor – Charles O. "Chuck" Prince III, 57 – resigned under pressure on Nov. 4, largely because of mounting losses from soured loans and complex securities known as collateralized debt obligations.

Citigroup is one of more than 90 U.S. companies expected to face resolutions seeking a greater say for shareholders on pay of top executives at their annual meeting this year. At the company’s stockholders’ meeting last April, shareholders rejected a proposal that would have given them an advisory vote on pay for Citi executives.

Other executives received Citigroup shares, too, including:

• Sir Winfried Bischoff, 66, who became Citigroup’s chairman in December, acquired a net 179,519 shares, worth about $4.4 million under the 1999 incentive plan. This increased his stake in Citigroup to 423,542 shares.

• Gary L. Crittenden, 53, who became chief financial officer in March, acquired 377,579 shares worth about $9.2 million, boosting his stake to 655,153 shares.

• Sallie L. Krawcheck, 42, the wealth management chief, acquired a net 320,087 shares worth about $7.8 million, raising her stake to 584,028 shares.

According to Citigroup, the awards to both Bischoff and Krawcheck reflect the withholding of some shares to cover tax payments.

Citi Turn to  "Cash Barons" for Latest Bailout

When it announced its fourth-quarter financial results back in mid-January, Citi posted its biggest-ever loss, slashed its dividend 41% and announced that it had raised $14.5 billion to bolster its sagging balance sheet.

For the three months ended Dec. 31, Citigroup reported a loss of $9.83 billion, or $1.99 per share, compared to net income of $5.13 billion, or $1.03 per share, for the comparable quarter in 2006. The results included subprime-related write-downs of $18.1 billion – which were in addition to tens of billions in write-downs the bank had already recorded.

Citigroup also announced a dividend cut of 41% – breaking a promise the interim management team had made to keep the quarterly payout intact.

"Our financial results this quarter are clearly unacceptable," the just-appointed Pandit had said at the time.

Pandit, a former Morgan Stanley (MS) executive, took over the CEO duties in mid-December from Bischoff, who had been acting CEO since Prince’s ouster. Once Pandit took the help as CEO, Bischoff took over as chairman from former U.S. Treasury Secretary Robert E. Rubin.

While serving as interim chairman, Rubin, former Treasury Secretary under President Bill Clinton, promised shareholders the bank would not slash its dividend. But with Citi clearly still hurting for capital, it was a promise the bank couldn’t keep.

Saudi Prince Alwaleed bid Talal – a well-known Contrarian investor who already holds a 3.6% stake in Citi – boosted his stake in the bank to the 4.9% maximum permitted without triggering a U.S. regulatory review, Bloomberg News reported.

"The fresh capital signals the Prince’s continued support of Citi and confidence in its future," P.J. Shoucair, a Riyadh-based investment adviser told Bloomberg News in a phone interview.
Alwaleed bailed out Citigroup-predecessor Citicorp Inc., with a $590 million investment in 1991. That initial investment made Alwaleed Citi’s largest individual shareholder and is now valued at approximately $6 billion.

In addition to the capital infusion from Prince Alwaleed, Citi also will receive cash investments from sovereign wealth funds in Singapore and Kuwait, as well as from former Chairman Sanford "Sandy" Weill.

Citigroup already received a $7.5 billion investment from Abu Dhabi Investment Authority (ADIA), the United Arab Emirate’s state-controlled sovereign wealth fund, in November. Under the terms of the deal, ADIA’s stake will not breach 4.9% and will have no managerial oversight.

News and Related Story Links:

• Reuters:
  Citigroup CEO Gets $26.7 Million in Stock, 3 Million Options.

• Money Morning News:
  Citigroup Cuts Dividend, Receives Another Capital Infusion; Merrill Gets Cash Boost.

• Bloomberg:
  Alwaleed Buys More Citigroup, Reaching His ‘Maximum’

• Bloomberg:
  Citigroup, Merrill Lynch Get $21 Billion From Outside Investors

• MarketWatch:
  Citigroup swings to loss on $18 billion write-down

• Money Morning:
  Citigroup: Why This Turnaround Play Has Legs – Big Ones

Beleaguered banking giant Citigroup Inc. (C) yesterday (Tuesday) posted its biggest-ever loss, slashed its dividend 41% and said it had raised $14.5 billion to bolster its sagging balance sheet.

The revelations sent Citi’s shares down $2.12 each, or 7.30%, to $26.94 in trading Tuesday. The announcements were part of the financial giant’s fourth-quarter financial report.

In related news, rival investment bank Merrill Lynch & Co. Inc. (MER) – also a victim of the subprime mortgage crisis – yesterday announced it was receiving a $6.6 billion capital infusion of its own.

Citi’s Fourth Quarter: No Profits, More Pain

For the three months ended Dec. 31, Citigroup reported a loss of $9.83 billion, or $1.99 per share, compared to net income of $5.13 billion, or $1.03 per share, for the comparable quarter in 2006. The results included subprime-related write-downs of $18.1 billion – which are in addition to tens of billions in write-downs the bank has already recorded.

Citigroup also announced a dividend cut of 41% – breaking a promise the interim management team made. 

"Our financial results this quarter are clearly unacceptable," newly appointed Chief Executive Officer Vikram Pandit said in a company statement.

Pandit, 50, a former Morgan Stanley (MS) executive, took over duties in mid-December from Win Bischoff, acting CEO after the Nov. 4 ouster of former Chief Executive Officer Charles O. "Chuck" Prince III, 57. Prince left in large part due to spiraling losses from Citi’s credit-related businesses and the growing subprime mortgage crisis. Bischoff took over chairman duties.

While serving as interim chairman, Robert E. Rubin, former Treasury Secretary under President Bill Clinton, promised shareholders the bank would not slash its dividend. But with Citi clearly still hurting for capital, that’s a promise the bank can no longer keep.  

Citi Turn to  "Cash Barons" for a Repeat Bail-Out

Saudi Prince Alwaleed bid Talal – a well-known Contrarian investor who already holds a 3.6% stake in Citi – boosted his stake in the bank to the 4.9% maximum permitted without triggering a U.S. regulatory review, Bloomberg News reported.

"The fresh capital signals the Prince’s continued support of Citi and confidence in its future," P.J. Shoucair, a Riyadh-based investment adviser told Bloomberg News in a phone interview.

Alwaleed bailed out Citigroup-predecessor Citicorp Inc., with a $590 million investment in 1991. That initial investment made Alwaleed Citi’s largest individual shareholder and is now valued at approximately $6 billion.

In addition to the capital infusion from Prince Alwaleed, Citi also will receive cash investments from sovereign wealth funds in Singapore and Kuwait, as well as from former Chairman Sanford "Sandy" Weill.

Citigroup already received a $7.5 billion investment from Abu Dhabi Investment Authority (ADIA), the United Arab Emirate’s state-controlled sovereign wealth fund, in November. Under the terms of the deal, ADIA’s stake will not breach 4.9% and will have no managerial oversight.

Merrill’s Maladies

In a related development, sector rival Merrill Lynch will receive a $6.6 billion investment from a combination of sources: Tokyo-based Mizuho Financial Group Inc., the Kuwait Investment Authority and the Korean Investment Corp. Merrill is scheduled to announce fourth-quarter earnings Thursday and is expected to take another $15 billion in write-downs.

Merrill received a combined $6.2 billion investment from Singapore sovereign wealth fund, Temasek Holdings Pte. Ltd., and private equity firm, Davis Selected Advisors LP in December. 

News and Related Story Links:

• Bloomberg:
• Alwaleed Buys More Citigroup, Reaching His ‘Maximum’

• Bloomberg:
  Citigroup, Merrill Lynch Get $21 Billion From Outside Investors
  
  
• MarketWatch:
  Citigroup swings to loss on $18 billion write-down

• MoneyMorning:
  Citigroup: Why This Turnaround Play Has Legs – Big Ones