HEARD ON THE STREET
Why Citi Struggles to Tally Losses
Swelling Write-Downs Show Just How Fallible Pricing Models Can Be
By CARRICK MOLLENKAMP and DAVID REILLY
November 5, 2007
When the market for mortgage securities entered a meltdown over the summer, financial firms holding billions of dollars of hard-to-trade assets used mathematical pricing models that were heavily dependent on credit ratings. When the credit-rating firms began a massive downgrade campaign last month, firms such as Citigroup Inc. and Merrill Lynch & Co. saw the value of their holdings plummet.
Citigroup's struggles to put an exact number on its losses demonstrate just how fallible the models can be, and how serious the consequences. Last night, Citigroup said that the downgrades will result in a reduction of fourth-quarter net income of $5 billion to $7 billion. That follows a third quarter when Citigroup recorded mortgage-related write-downs of $2.2 billion in the third quarter, including losses on subprime securities and fixed-income trading.
Citigroup's subprime exposure -- and source of its problems -- are two big buckets that together total $55 billion, the bank said.
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RUBIN TO THE RESCUE!
Citigroup CEO Resigns; Interim Named
Sunday November 4, 9:03 pm ET
By Madlen Read, AP Business Writer
Citigroup Chairman and CEO Prince Resigns, Replaced As Chairman by Former Treasury Secy Rubin NEW YORK (AP) -- Citigroup Inc. Chairman and Chief Executive Charles Prince, beset by the company's billions of dollars in losses from investing in bad debt, resigned Sunday and is being replaced as chairman by former Treasury Secretary Robert E. Rubin.
[img]http://tbn0.google.com/images?q=tbn:Q0gVpMrSyFVVaM:http://g.fool.com/art/specials/heartthrobs/rubin.jpg[/img]
Edited by Rogerdodger, 04 November 2007 - 11:39 PM.
