Posted March 08, 2018 09:05:03It’s not often that a company is forced to cut its profits by as much as it did with Citigroup on Thursday, but that’s what happened when the New York City-based lender announced a major restructuring and the sale of its debt and assets.
Citi announced in a statement that it had to reduce its earnings by $5 billion in a few weeks as it tries to keep its credit rating and balance sheet stable.
Cushing, New York-based Citigroup will be paying a $2.8 billion payment to the government and investors as a result.
The company said it was going to cut $10 billion of revenue, or 25 percent, from the balance sheet.
Covington, Ohio-based Citi is one of the biggest lenders in the U.S. and has been struggling for years as investors have become increasingly wary of the bank’s financial health and its ability to provide them with high-quality credit.
Citigroup’s latest earnings report comes less than a month after the bank reported a fourth-quarter loss of $1.8bn, which was lower than Wall Street’s expectation of a $1bn profit.
However, the company said the $5bn loss was due to an “ongoing reduction in our capital structure.”
Citi said the restructuring and sale of the troubled debt and a new capital structure would help it achieve a “more sustainable long-term financial picture.”
The deal will be the biggest financial transaction in Citigroup history.
“The financing of the restructuring will be a significant, positive impact on the company and the shareholders,” the company wrote in its statement.
The restructuring is likely to cost the bank up to $20 billion.
The news comes just days after Citigroup said it would pay $50 billion to settle lawsuits from the Federal Trade Commission and the Office of the Comptroller of the Currency over the way the company handled customer complaints.
Citi said the settlement will provide it with “the most robust and robust” settlement it has ever negotiated.
Citibank’s shares fell 3.9 percent to $11.95 in midday trading on Thursday.
Wall Street was expecting the stock to drop 2.5 percent.
Citing weak demand for its credit cards, Citigroup cut its earnings guidance for the full year, from $18.4bn to $18bn, on Thursday to a range of $15.5bn to as low as $11bn.
The bank said that if the company had done what Wall Street expected and continued to run at current earnings, the bank would have been able to generate a net profit of $13.2bn.
But Citigroup was able to make a profit of just $2bn in the fourth quarter of 2018, while the rest of the year is expected to be a net loss of more than $15bn.
While the bank said the merger was a good outcome for shareholders, analysts were skeptical of the deal, saying it would be difficult to recoup the cost of the debt sale.
“It’s a big step for Citi, and it’s a step away from the bankruptcy and liquidation that they were able to get through,” said Paul Goldfarb, chief financial officer of Credit Research Associates.
Citin’s chief executive officer, John Mack, said in a letter to shareholders that the merger would provide a “powerful catalyst for the company, and for the industry as a whole.”
The company has been hit hard by the recession.
In 2017, it had the worst U.K. credit score of any major U.L.I.C.C.-related company, which means it’s the most vulnerable to the impact of a downturn in the economy.
The financial crisis that began in 2008 has pushed Citigroup to seek greater protection from its peers, such as JPMorgan Chase and Bank of America.
It has also been battered by the fallout from a wave of fraudulent transactions, which helped spark the bank to enter bankruptcy in 2015.