Citigroup Reflects Down Turning Market

[Jun 12, 2008.]

 

Citigroup, one of the nation's largest lenders reported a significant loss for the first quarter a second during a time of economic fears and worries. The bank which serves several sectors including mortgage lending reported a loss of a little over $5 billion caused by the continuing sub prime mortgage crisis. They will be forced to cut an additional 9,000 jobs in the face of the loss. Merrill Lynch, Citigroup's rival plans to lay off some 4,000 positions in a response to their own $4.5 billion loss. Both groups claim sub prime crisis as the leading factor in the down turn and expects to see continuing losses through the rest of 2008.

During the final months of 2007 Citigroup had a record loss of $9.8 billion which makes the recent figures an actual improvement, if only a very slight one. Despite the loss Citigroup stocks did see an increase of 4.5% though the price for their stocks are about half as much as they were one year ago before the sub prime mortgage crisis took effect.

Much of Citigroups losses are tied into the write downs of several sub prime mortgages. Sup prime mortgages are directed at those with poor credit who would otherwise be unable to afford to buy homes if not for the help of these kinds of mortgages. Last year interest rates rose sharply resulting in a record amount of mortgage defaults and foreclosures. This crisis has spread to other financial sectors and has resulted in the downturn of the US economy. A credit crunch has resulted as banks have become more and more cautious of handing out loans to those deemed a risk.

Citigroup alone has seen consumer credit cost raise to $3 billion as many are unable to keep up with loan payments. Many experts share mixed opinions on whether or not the credit crunch is preparing to even out; both groups citing the current loss of Citigroup as an example to support their claims.