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Tuesday, January 15, 2008


more damage in citi, merrill, retail

per bloomberg:

Citigroup Inc. posted the biggest loss in the U.S. bank's 196-year history as surging defaults on home loans forced it to write down the value of subprime-mortgage investments by $18 billion.

The fourth-quarter net loss of $9.83 billion, or $1.99 a share, compared with a profit of $5.1 billion, or $1.03, a year earlier, the largest U.S. bank said today in a statement. New York-based Citigroup also reduced its dividend by 41 percent, cut 4,200 jobs and obtained $14.5 billion from outside investors to shore up depleted capital.

massive -- on top of everything that's already come -- an $18bn mortgage-related writedown is the largest so far, the 41% dividend cut that meredith whitney called months ago, another $4.1bn reserved against coming loan losses, and more new capital raised in the amount of $14bn. calculated risk has more, as does minyanville.

the pain isn't limited to citi.

The fourth quarter may be the worst earnings period for the financial industry since the Great Depression. Analysts estimate Merrill Lynch & Co., the biggest U.S. brokerage, will report a record loss of more than $3 billion after writing down the value of mortgage-related securities, and Bank of America, the second- largest U.S. bank by assets after Citigroup, may report its biggest profit decline since its formation in 1998 from the merger of BankAmerica and NationsBank.

Merrill, the biggest U.S. brokerage, said earlier today it raised $6.6 billion by selling preferred shares to a group including the Kuwaiti Investment Authority and Japan's Mizuho Financial Group Inc.

the worst quarter since the depression -- indeed, we are witnessing the return of hardship as the damage widens from a from earlier announcements.

compounded with today's news of an out-and-out decline in retail sales in the christmas season, on top of many other signs of very weak consumer credit, and bank failures look more and more likely as asset deflation takes hold.

Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.

Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.

Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.

For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.

``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report.

this shouldn't be a surprise with consumer confidence falling apart for months now. citi's call reinforced the obvious -- consumer credit, especially that considerable portion tied to folks with mortgages, has become a problem.

is this a bottom clearing? possibly, with major banks reporting earnings this week. technically, the broader picture painted is a contrarian's delight -- a multimonth run looks to be possible here. but the formation of the low may take more time.

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