Investor Alert

July 18, 2008, 11:03 a.m. EDT

Citi CFO: loan losses rise - along with organic growth

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NEW YORK (Dow Jones)--Citigroup Inc.'s /zigman2/quotes/207741460/composite C -0.33% losses from consumer defaults on mortgage and credit-card loans could rise through the rest of the year, Chief Financial Officer Gary Crittenden said Friday and, if so, "could have a meaningful impact on our results for the remainder of the year."

Citigroup on Friday reported second-quarter earnings that were better than most analysts expected. But during a conference call to explain the results, the bank's CFO cautioned that the worst of losses from consumer loans could well be far from peaking.

"Credit costs in our consumer business may rise through the year," said Crittenden.

Within the bank's portfolio of first mortgages, 3.69% of all borrowers are more than 90 days past due in making payments, an increase of 22% since the first quarter, and Crittenden said credit costs for both the bank's first and second mortgage portfolios could reach "historically high levels."

He said the bank forecasts that housing prices will fall 23% in total before recovering, a forecast that the bank has darkened since it said in the first quarter that prices would likely fall 20% in total.

Crittenden said losses from delinquent North American credit-card loans could also reach unprecedented levels.

"We may see loss rates that exceed their historical peaks" for those credit-card loans, Crittenden said.

Adding to the drain on Citi's earnings was an esoteric charge of $745 million related to the value of the company's mortgage servicing rights. Crittenden said the bank typically tries to hedge the value of those rights to offset any volatile movements in their value, but "we did not achieve that in this quarter."

Citi's wealth-management business, including its brokerage unit Smith Barney, has historically buffeted the bank's earnings with consistently positive results. But earnings from the wealth-management sector were lackluster for a second consecutive quarter as fee-based assets under management - a lucrative business that doesn't rely on commissioned transactions - declined by 8.5% as clients withdrew about $11 billion from the bank's overall advisory services.

Crittenden nonetheless emphasized the brighter aspects of Citigroup's second-quarter results, telling analysts that the bank is seeing "strong organic growth across most of our categories." He noted that the bank's prime brokerage unit - or the business of offering loans and investment services to hedge funds - "generated record revenues."

Crittenden also noted that the bank has cut its total losses in half in each of the last two quarters.

-By Marshall Eckblad, Dow Jones Newswires; 201-938-4306; marshall.eckblad@dowjones.com

(END) Dow Jones Newswires

July 18, 2008 10:22 ET (14:22 GMT)

-Contact: 201-938-5400

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