One year ago this week, the board of a struggling Citigroup Inc. ousted Chief Executive Charles Prince in hopes of turning the bank around. Twelve months and $68 billion in mortgage-related losses later, Citi shares have lost 65% of their value, and the company has so many troubled assets that its days as a leader in U.S. finance appear to be over.What was once the world's biggest bank has slipped to a position as America's fourth-largest by market value, ahead of Minneapolis-based U.S. Bancorp.
Today, Citi CEO Vikram Pandit is furiously trying to right his ship by cutting costs, jettisoning risky assets and selling nonessentials. Working against him is the sinking economy, which is exposing Citi to titanic losses on everything from credit cards to office-building loans. Adding to the company's pain, healthier rivals Bank of America and J.P. Morgan Chase are expanding aggressively, in part filling the void left by Citi's retreat.
“Citi no longer matters,” says Bill Smith, head of Smith Asset Management, a shareholder in and longtime critic of the bank. “It's a black hole.”
The numbers are grim: Citigroup has racked up $20 billion in net losses over the past year, while J.P. Morgan and BofA have generated net income of $8 billion and $6 billion, respectively.
Similarly, Citi sat binding its wounds as J.P. Morgan grabbed Bear Stearns and Washington Mutual at fire-sale prices and BofA captured Merrill Lynch. Citi's one attempt at vulture investing—a low-ball bid for the failing Wachovia—was blown out of the water by the healthier Wells Fargo.
Even after massive write-downs, the bank still has $138 billion of “problem assets,” according to brokerage firm Fox-Pitt Kelton, compared with J.P. Morgan's $32 billion. Credit losses and nonperforming assets continue to rise, which suggests a continuation of the past year's pattern of painful write-downs and costly capital injections.
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