CIBC’S MEREDITH WHITNEY TELLS FOX BUSINES NETWORK THAT

CITIGROUP’S CAPITAL RATIOS WILL LOOK WORSE AFTER FOURTH QUARTER

courtesy Fox Business

Last week, Meredith Whitney, CIBC Senior Financial Analyst and FOX Business Network Contributor, downgraded Citigroup to “sector underperformer” from “sector performer,” driving the share price down 7 percent. Now, Citigroup’s CEO, Chuck Prince, has resigned. Today, Whitney sat down with FOX Business Network’s Tom Sullivan to talk about Citigroup’s outlook for the fourth quarter, why Citigroup’s strategy of becoming a more unified organization didn’t work, the status of Citigroup’s international divisions and what Citigroup needs to do now in light of these losses. Excerpts are below.

On Citigroup’s statement that they’ll maintain their dividends and be back to adequate capital levels by the second quarter:

“In our opinion, the numbers don’t add up. They’re taking an $8 billion to an $11 billion charge in the fourth quarter, which actually reduces their outstanding capital and we expect them to put more assets back on the balance sheet so their capital ratios are going to look worse after the fourth quarter and I think they’re going to be under pressure to cut that dividend.”

On Citigroup’s strategy of becoming a more unified company:

“The problem is that they just never invested in technology, and as a result, their equivalent of the mortgage business speaks Cantonese while their credit card division speaks Mandarin. They’re effectively running separate companies under one organization and, as a result, they don’t have any of the benefits from having these separate pods. So, good on paper, but not good on execution.”

On Citigroup’s international divisions:

“Let’s be fair here. Their international business isn’t making any money – their international consumer business, that is. They just bought Nikko Cordial and now Japan’s economic condition is subject to anyone’s guess. Their international divisions aren’t really growing, aren’t really making any money. They bought these international divisions for the sake of international revenues but the reality is that the US economy is slowing, particularly with the US consumers so the credit card business hasn’t grown in three or four years, and now the mortgage business, obviously because of the housing sector, isn’t growing, and now the capital markets business has all but ceased to grow. So, bad things all around are happening with the company.”

On what Citigroup needs to do now:

“This company basically has to spin-of assets because now the technology investment is so cost-prohibitive that they can’t do it as a consolidated entity.”

“No doubt they have to sell assets; no doubt they’re going to have to raise some sort of capital and both of those things will put pressure on earnings, which ultimately puts pressure on their ability to pay shareholders a dividend.”

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