Credit crunched: Citi warns of 60% earnings drop
NEW YORK -- The announcement from Citigroup came as the Swiss bank UBS said it will post a loss of up to $690 million in the third quarter partly due to losses linked to U.S. subprime mortgages.
Subprime mortgages — loans given to customers with poor credit history — have gone delinquent or defaulted at rising rates in recent months, causing banks to lower the value of the loans as investors shy away from buying them.
Weakness in that business spread to other credit markets, leaving banks stuck with loans they promised during the merger and acquisition boom.
Citigroup will write down about $1.4 billion on funded and unfunded loan commitments when it announces its third-quarter results. It will record losses of about $1.3 billion on the value of securities backed by subprime loans. Citigroup will also record a loss of $600 million in fixed-income credit trading due to market volatility.
Third-quarter global consumer credit costs also increased $2.6 billion from the same quarter a year ago, the company said. About 75% of that increase is due to rising loan-loss reserves — money held to cover loans that default.
Citigroup moved its earnings release date to Oct. 15 from Oct. 19.
The losses will hit UBS' Investment Bank, but "our Global Wealth Management & Business Banking and Global Asset Management businesses continue to record good results," said a company statement.
The loss will result in the shedding of 1,500 jobs from the bank's workforce of 80,000 people by the end of this year, Chief Executive Marcel Rohner said in a conference call.
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