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Citigroup (C)
Citigroup Says Goodbye to Another $7.6B
Fourth-quarter earnings are starting to pour in and some of the results are not painting a pretty picture. At one time, some of the major banks in the United States were standing at Uncle Sam's doorstep asking for a handout. Flash forward a year later and most of them were more than anxious to repay the funds. This came as no surprise because most of these banks wanted to get the government off their backs as soon as possible. Citigroup, one of the biggest recipients of TARP funds, posted a $7.6 billion quarterly loss on costs related to TARP repayment and high loan losses. Did Citigroup make the right decision by repaying the funds so soon? How has the company changed to prevent it from having to ask for another handout?
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The news from Citigroup was not all bad. The company's report actually showed that losses are narrowing, which is always a step in the right direction. The one bright spot in the sea of red ink was the fact that consumer and corporate loans fell compared with the third quarter. Fourth-quarter net credit losses fell by about $800 million from the third quarter to $7.1 billion. This marked the second straight quarter of improvement and signaled to investors that credit costs may be stabilizing. Since Citigroup is fighting an uphill battle to return to profitability, many are wondering if repaying the TARP funds was really the best decision. The answer depends on who you're asking. For Citigroup, this decision provided them with a certain level of freedom that it was previously lacking as a recipient of TARP funds. Citigroup wanted the ability to pay their senior executives as they sought fit. The company also wanted to return to business as usual, which typically involves a certain level of risk taking. Let's not forget that risk taking made the company very profitable, but also was a major contributor to its near collapse. On the other hand, many would argue that repayment of the bailout funds was a move in the wrong direction. Now that these banks don't have all the strings attached to TARP funds, the risks that they take may backfire and send the economy in another downward spiral.
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Citigroup has been taking a variety of steps to ensure that it's able to return to profitability. Chief Executive Officer Vikram Pandit said the company has made “enormous progress”. Revenue from trading and investment-banking climbed 5.9 percent from a year earlier to $5.4 billion. Some of the other changes include improvements in Citi's capital strength, reduction in the size and scope of the company, and a more focused business strategy to take advantage of the company's unmatched global network.
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Citi's performance in future quarters is still very unclear. The company may very well spend the rest of 2010 fighting to cut losses and return to profitability. Citigroup's Chief Financial Officer John Gerspach said there are signs the economic recovery is taking hold outside the United States. If things continue to improve, the company will surely start to reap the benefits. Shares of Citigroup were up 2 percent during morning trading.
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Other Stocks in the News
Cadbury Accepts Sweetened Deal From Kraft - The boards of Cadbury (CBY: Charts, News, Offers) and US giant Kraft Foods (KFT: Charts, News, Offers) have agreed a deal which will see Kraft takeover the British chocolate make.
Google puts Android in China plans on hold - Google (GOOG: Charts, News, Offers) said Tuesday that it and a Chinese cellphone service company had postponed the release this week of two mobile phones that would use Google's Android software.
Chevron Downsizes - Oil company Chevron Corp (CVX: Charts, News, Offers) plans to restructure its refinery operations, cutting some jobs and exiting some markets.
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