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Looks like the Citigroup Inc. [C] empire has officially crumbled with the announcement Tuesday morning of the company's biggest loss ever, $9.8 billion and a write-down of $18 billion. To turn things around, the company said it would employ several strategies to stop the bleeding including a capital infusion of $12.5 billion and making divestitures, which pretty much will break up the financial supermarket former CEO Sandy Weill cobbled together in the mid- to late 1990s. The expected bad news at Citigroup triggered a selling spree, pushing the markets down as the Dow traded down 202.33, or 1.58%, at 12,575.82. Meanwhile, the Nasdaq was down 47.53, or 1.92%, to 2,430.77 by midday. Tuesday midday losses have erased Monday's market gains.
The New York-based financial company blamed the losses on the acceleration of the subprime crisis and the weakening economy. To bolster its finances, Citigroup said it was receiving a capital infusion of $12.5 billion by selling convertible preferred stock through a private placement from a group of investors that include:
The new investment comes in the wake of a $7.5 billion investment from Abu Dhabi's investment arm in November. Citigroup also will cut its quarterly dividend by 41% to 32 cents as well as lay off 4,200 workers. Citigroup has already made some minor trimming of its assets selling a portfolio of New York City office buildings for $1.6 billion in November 2007. But more divestitures should come in the form of selling units in its pandora box of holdings. Meanwhile, Merrill Lynch & Co. [MER] said it will sell $6.6 billion in stock to the Korea Investment Corp., Kuwait Investment Authority and the Mizuho Financial Group. The capital infusion is the second time Merrill has dipped into that well. In December, Merrill Lynch said it would sell a stake worth up to $5 billion to Singapore's Temasek Holdings and an additional $1.2 billion stake to Davis Selected Advisers LP. According to TheDeal.com's Peter Moreria, the Merrill and Citi capital infusions exceed those predicted in press reports just days ago, when Citigroup was expected to raise $10 billion and Merrill Lynch $3 billion to $4 billion. Lastly, Baltimore-based fund manager Legg Mason Inc. [LM] said it would sell $1.25 billion of convertible senior notes to buyout shop Kohlberg Kravis Roberts & Co. , part of which will be used to buy securities from Citigroup that are convertible to Legg Mason stock. - Gerald Magpily TheDeal.com: Citigroup, Merrill to raise $21B TheDeal.com: Legg sells $1.25B in notes to KKR Categories Deal Video
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