Citigroup Inc is likely to announce on Tuesday a significant dividend cut, at least $10 billion of new capital and a writedown of as much of $20 billion, the Wall Street Journal reported on Monday.
The largest US bank is also likely to announce more than 20,000 job cuts when it posts fourth-quarter results on Tuesday, the Journal reported, as new Chief Executive Vikram Pandit tries to cut costs.
"You have a new person at the helm. He's going to do what he can to clear the decks," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon.
The new capital is expected to come from sources including the Government Investment Corp (GIC) of Singapore, the Kuwait Investment Authority, and Saudi Prince Alwaleed bin Talal, already one of the largest Citi shareholders, the Journal reported, citing people familiar with the plans.
Jennifer Lewis, head of communications at GIC, declined to comment. "We can only comment on transactions that have been done or announced," she said.
Citigroup is struggling with a widening subprime mortgage crisis that has forced it to write down billions of dollars of assets and pushed its capital ratios below target levels.
It is expected to report a fourth-quarter loss, its first since Sanford "Sandy" Weill put the financial conglomerate together in 1998.
But a dividend decrease would represent an about-face for Citi, which said in a November 4 statement it had "no plans to reduce its current dividend level."
Analysts, most notably Meredith Whitney of CIBC World Markets, have been forecasting a Citi dividend cut for several months. Cutting the 54-cent-a-share quarterly dividend in half would save Citigroup more than $5 billion a year.
The new capital comes after state-owned China Development Bank decided not to buy a $2 billion stake in Citi, the Journal reported, saying senior Chinese government opposition surfaced over the weekend but the reason for the decision was unclear.
"We are completely unaware of the issue," an official in the news department of China Development Bank said.
A China Development Bank source familiar with the situation but not directly involved had told Reuters on Monday that Citi and China Development Bank had been in talks toward a possible capital injection from the Beijing-run policy bank.
As for job cuts, Citigroup's investment bank will likely take the biggest hit, with roughly 6,500 positions eliminated, the Journal said. That would follow the bank's announcement last April that it was cutting 17,000 jobs. At the end of 2006, Citi had a workforce of about 327,000.
Cash-rich government investment vehicles from the Middle East and Asia have been taking multibillion-dollar stakes in ailing Western financial firms in recent months.
The Abu Dhabi Investment Authority invested $7.5 billion in Citi in November after the bank posted $6.8 billion of mortgage-related writedowns for the third quarter and CEO Charles Prince left as Citi said the fourth quarter could bring a further $11 billion of writedowns.
In December, China's new sovereign wealth fund, China Investment Corp Ltd, took a $5 billion stake in Wall Street's Morgan Stanley.
Citibank likely to announce dividend cut, layoffs: report