Citigroup faces major threats from the slump in the prestige commerce and the subprime mortgage market. This has already caused the company's revenues to fall by 8.3% and operating profits and net profits by a anticipated 94.3% and 83.2% respectively. The difficult mortgage shop is probably going to make matters worse for Citigroup as the value of its current assets decline steadily.
In November 2008, Citigroup's shares fell by more than 60% and resulted in seeking Government intervention. They have already received billion in aid from the Us Government in 2008 to help assert liquidity and are now finding to enlarge the Government's stake in their company operations.
According to Reuters Uk, 2009, Citigroup is planning on selling its investment banking and brokerage company in Japan to raise money from disposing global assets. Citigroup has had a low profile and below break-even operating margins in Japan. The Japanese operations have been a drain on their Asian division. This downfall will make Cititgroup's position weaker in Asia as compared to competitors and may cause it to lose titanic shop position.
With its weakened financial condition and the current economic conditions, the global industrial banking commerce is getting more contract and consolidated with acquisitions and mergers. new examples contain the merger of Wachovia and Wells Fargo, Jp Morgan Chase's buyout of Washington Mutual and these will added intensify as the shop remain uncertain and the value of Citigroup's assets fall further. Such consolidation will enlarge competition leading to more diversified businesses, thereby again depleting Citigroup's shop share.
Us mortgage lenders are suffering from rising default rates amid weak housing prices and slower sales in the housing market. Citigroup's Us consumer lending provides home mortgages and home equity loans to prime and non-prime customers. Given the weak outlook for the sub-prime shop the group is likely to description added deterioration in the performance of this division.
Over the years, Citigroup's capital adequacy ratios have declined. The company wrote off assets worth .9 billion in 2008 resulting in a lower Tier 1 ratio. The difficult prestige shop and Citigroup's heavy exposure led to the company being downgraded by all the agencies. On top of declining investor confidence due to heavy losses and rating downgrade, the added capital infusion is likely to have dilutive corollary on the earnings, adversely affecting the shop sentiment and investor returns.
Can Citigroup Still Expand? - 2
