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Citi Sees Consumer Hit Hard

Execs speak of a U.S. consumer credit slowdown.


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CFO Gary Crittenden predicted that the U.S. consumer credit environment will continue to deteriorate throughout the rest of the year.

The exec spoke Monday on a conference call in which executives discussed what CEO Charles Prince called a "disappointing" 57% drop in third-quarter profit. A slowdown in the consumer credit sector could hit the bank hard: The U.S. consumer business made up one-third of Citi's $23 billion in total revenue and 40% of its net income in the third quarter.

"There really is a deterioration happening in mortgages right now," Crittenden said during Monday. "We think we are running better than the industry based on the numbers that we can see, but we have a 30-day lag in getting information from the industry. But having said that, there clearly was an uptick in the quarter, and our expectation is that that's going to continue as we go into the fourth quarter."

During the quarter, Citi's total credit costs jumped by $3 billion, as the bank recognized $780 million in credit losses and took a net charge of $2.24 billion to increase loan-loss reserves.

The U.S. consumer business was a large contributor to the increase in credit expenses. It had net credit losses of $278 million and a net charge of $1.3 billion to increase reserves in the quarter, the company said.

The increase in U.S. credit expenses primarily reflected a "weakening leading credit indicators, including increased delinquencies on mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth and a change in estimate of loan losses inherent in the portfolio, but not yet visible in delinquencies," Citi said.

Citi's domestic consumer operations have been struggling, as competition has been on the rise from the likes of

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. Citi has also been placing more emphasis on growing its international business.

Citi had warned two weeks ago of big writedowns that would cause a sharp drop in third-quarter numbers.

During September, delinquencies in Citi's first and second mortgage portfolio increased "substantially," particularly in the month of September, Crittenden said. While delinquency trends in Citi's first mortgage portfolio are still below their peak in 2003, delinquency rates in its second mortgage portfolio are at "historically high levels," he added.

"We continue to watch credit very closely and our expectation based on the acceleration in our mortgage delinquencies in September ... is that consumer credit in the U.S. will continue to deteriorate in the fourth quarter," Crittenden said on the call.

Citi expects about $1.7 billion, or 2%, of its adjustable-rate mortgages to reset in the fourth quarter. Next year, about $10 billion ARM loans are scheduled to reset, Citi said.

Citi has eliminated several product categories such as mortgage loans for investment properties or loans for three-to-four-family homes.

The company said since the beginning of this year it has added 1,700 collectors and recovery staff to deal with the higher losses in its consumer businesses. Citi said it has added some 560 collectors in its mortgage business.

Shares fell $1.67 to $46.20.