Assessing Other Credit Risks At Citigroup

In an internal memo released yesterday, Citigroup Inc (C-$21.17) Chief Executive Vikram Pandit called the bank "well capitalized," and characterized most of its major units as "dynamic and thriving businesses."

This morning, the largest U.S. bank said it aims to cut its home loan exposure by $45 billion, or by about 20 percent, over the next year.

In addition, the Company plans to "improve the quality of origination, tighten underwriting criteria, and make changes to policy and process to mitigate losses."

Albeit these changes tackle residential mortgage loan exposure, yet to be addressed are potential write-downs to come in other consumer lending and commercial real estate loan origination businesses.

As of the end of the fourth quarter FY 2007 (ended December 31), in the U.S. consumer credit division, total loans 90 days or more Past Due increased Y/Y to $9.84 billion, up 37 basis points to 1.66% of total Consumer loans outstanding:

• Managed loans for credit cards 90 (plus) days Past Due increased 14 percent Y/Y to $2.65 billion.
• Auto loans 90 (plus) days Past Due increased 73 percent Y/Y to $285 million.

As of the end of the fourth quarter FY 2007 (ended December 31), loans 90 (plus) days Past Due in the U.S. commercial loan division increased 20 percent Y/Y to $179 million.

Citibank has, in the aggregate, U.S. commercial lending exposure of about $42.7 billion at year-end 2007, with most of this exposure in commercial real estate and equipment finance. Delinquencies of $179 million are an invisible number—for now.

As of December 31, allowance for credit losses stood at $17.36 billion, or 2.07% of total loans (excluding allowance for unfounded lending commitments), up from $10.04 billion, or 1.32% of total loans in the year ago period.

And it's too late, baby, now it's too late
Though we really did try to make it
Something inside has died and I can't hide
And I just can't fake it

Risk management initiatives are by definition, prospective exercises. Such assessments, however, come too late for deteriorating loans already on the books.

It used to be so easy living here with you
You were light and breezy and I knew just what to do
Now you look so unhappy, and I feel like a fool

Contrary to the pontifications of many pundits, the 10Q Detective does not believe that aggressive monetary easing by the Fed will forestall a broad-based recession. To wit, leading credit indicators at Citigroup suggest non-performing loans will spread materially beyond subprime-related exposure in coming quarters.

And it's too late, baby, now it's too late ~ Carole King (It’s Too Late youtube video)

Editor David J. Phillips does not hold a financial interest in Citigroup Inc. The 10Q Detective has a Full Disclosure Policy.