Citigroup issues profit warning

by Gill Montia

Story link: Citigroup issues profit warning

Citigroup, the investment and financial services group, has warned that losses in the mortgage markets will reduce its third quarter profit by as much as $3.3 billion.

The group expects a combination of the US sub-prime mortgage crisis and the squeeze on consumer credit to reduce profits after tax by approximately 60%.

As a result, profit after tax for the third quarter of 2007 will be around $2.2 billion, compared with $5.5 billion in the same quarter of 2006.

Citigroup expects to write down $1.4 billion on its leverage debt business and will also record a loss of $1.3 billion on the value of its sub-prime mortgage-backed securities.

In addition, the group expects market volatility to have created a $600 million loss in its fixed income credit trading.

According to the group’s chief executive, Chuck Prince, third quarter results will be an “aberration” and the business should return to normal in the fourth quarter.

Other major financial institutions are also issuing warnings with regard to third quarter profits.

Losses at UBS are expected to total as much as Sfr800 million; Credit Suisse has admitted that its operations have been “adversely impacted” by the turmoil in the credit markets but still expects to post a profit.

In addition, it has been reported that Deutsche Bank is preparing to take a €1.7 billion writedown in its leveraged loan portfolio.