Citi still struggling with failed loans; earnings disappoint investors

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CitigroupCitigroup (C) provided a sobering reminder Thursday that the economy is still struggling, reporting that its third quarter results were weighed down by billions of dollars in failed loans.

The bank reported a $101 million profit before accounting for $288 million in preferred stock dividends and the debt exchange offer that give the government a 34 percent stake in the bank. The exchange offer, which gave Citigroup a better mix of capital to withstand additional loan losses and further weakening in the economy, took earnings down $3.06 billion.
Including those items, the New York-based bank reported a $3.24 billion loss.

Investors reacted negatively to the report, sending Citi shares down 12 cents, or 2.4 percent, to $4.88 in premarket trading. Shares closed Wednesday at $5.

The bank, one of the hardest hit during the credit crisis and recession, said loan losses during the quarter came to $8 billion, down $386 million from nearly $8.4 billion in the second quarter, but a sign that many consumers continue to be overwhelmed. Banks including Citigroup had warned when second-quarter earnings were released that loan losses would continue into next year.

Citigroup said it added $800 million to its loan loss reserves during the third quarter, down $3.1 billion from the addition it made during the second quarter.

Citigroup, like other national banks, has seen more customers stop repaying loans as the economy falters and unemployment rises. Credit card defaults and mortgage losses are likely to continue to climb. Losses on credit cards typically mirror unemployment, which rose to 9.8 percent in September.

Economists predict the jobless rate will pass 10 percent in the coming months.

JPMorgan Chase & Co., which reported quarterly results Wednesday, also struggled with rising loan losses, particularly in its home and credit card loan portfolios. However, its strong investment banking division more than offset the troublesome loans, helping JPMorgan earn $3.59 billion during the quarter.
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