Citigroup and Merrill Lynch turned to foreign investors for an unprecedented bail-out yesterday, saying they will raise a total of $21.1 billion (€14.22 billion) in fresh capital, mainly from outside the US, to shore up balance sheets devastated by the subprime mortgage crisis.
Citigroup also unnerved investors by warning of losses to come from consumer loans as it revealed a $9.83 billion fourth-quarter loss, $18.1 billion in subprime credit writedowns, a 40 per cent dividend cut and remaining exposure of $37 billion to subprime mortgages.
"No one can say this whole thing is over," Gary Crittenden, Citi chief financial officer, said in an interview. "These are not optimistic assumptions. But there are always circumstances under which things could get worse."
Citigroup is raising $14.5 billion and Merrill $6.6 billion, largely from private investors and governments in the Middle East and Asia, representing the biggest single transfer of capital to US banks from abroad. It could raise pressure from US politicians concerned about foreign influence on US banking.
"Not since before World War I have companies gone looking for foreign capital as much as they are now," said Charles Geisst, a Wall Street historian.
Citi shares were down by nearly 7 per cent in midday trade after it said it had a $5.4 billion increase in consumer credit costs in the fourth quarter, reflecting $1.56 billion in credit losses and a charge of $3.85 billion to shore up loan loss reserves. Citi, which late last year raised $7.5 billion from Abu Dhabi, said it would raise another $12.5 billion through the sale of convertible preferred securities. It will cut its dividend from 54 cent to 32 cent a share and its staff by 4,200 jobs.
The Government of Singapore Investment Corporation will invest $6.88 billion in Citi. Other investors include the Kuwait Investment Authority and Prince Alwaleed bin Talal.
