Citigroup Posts $2.5 Billion Loss on Write-Downs

Hobbled by the credit crisis at home, Citigroup has limped through nine months in the red, reporting a $2.5 billion quarterly loss on Friday.

But across the financial company’s global empire, which spans more than 100 countries, similar tremors may be starting. In countries like Mexico, Brazil and India, loans in areas like home mortgages and credit cards are beginning to sour, as they have in the United States.

So far the problems are small. And Citigroup executives, who have spent months trying to turn the company around, say it is too soon to tell how much the problems might spread. The troubles hint at what could be in store for other American companies that rely on earnings from overseas, particularly when times are lean at home.

“We have clearly had some deterioration in credit internationally,” said Gary L. Crittenden, the chief financial officer of Citigroup. “That’s not isolated to Citigroup, that’s a broader question.”

The loss that Citigroup reported on Friday was not as gaping as many investors had feared. Wall Street cheered the results, which only a year ago would have been seen as disastrous.

For the quarter Citigroup lost 54 cents a share, and reported write-downs of $7.2 billion on its investments. On the consumer debt front, the bank also announced $4.4 billion in net credit losses and $2.5 billion to increase credit reserves.

Citigroup’s chief executive, Vikram S. Pandit, characterized the $2.5 billion loss as a sign of progress, compared with last quarter’s loss of $5.1 billion. Mr. Crittenden said revenues were at their strongest ever in several businesses, including prime brokerage and currency trading, and that this June nearly reached the record revenues of June 2007.

After so much bad news from the financial industry, investors took heart from the results. Shares of Citigroup rose $1.38, or about 8 percent, to $19.35. The showing at Citigroup, combined with stronger-than-expected earnings earlier in the week from JPMorgan Chase and Wells Fargo, helped the Standard & Poor’s 500-stock index snap a six-week losing streak. The index rose 21 points, or 1.7 percent, for the week.

“Investors are happy that the write-downs are under control,” said Stuart Plesser, the banking analyst at Standard & Poor’s Equity Research. “That’s what’s driving Citigroup’s price now — their write-downs.”

Citigroup has long prided itself on its global footprint, building out more than half of its retail 8,300 branches in countries other than the United States. The bank’s presence around the world sets it apart from its competitors like Bank of America and Wachovia.

Before the credit problems began, Citigroup was earning nearly 50 percent of its revenues outside North America — an earnings diversification more similar to major packaged goods companies than commercial banks.

Economists say that multinational companies should better withstand the downturn in the United States, because of their foreign revenues.

“It’s really: how much of a break will these earnings provide? And the answer is some, but we don’t know how much yet,” said Peter Cappelli, a professor of management at the Wharton School at the University of Pennsylvania.

Mr. Crittenden said it was too early to tell if there will be substantial downturns in Citigroup’s consumer markets outside the United States.

He pointed out consumer loans that were 90-days past due by region. In Europe and Asia, the percentage of outstanding loans overdue has moved up only slightly. But Latin America has seen its percentage jump from 2.86 percent in the second quarter last year to 3.54 percent in the current second quarter, which was mostly caused by problems in Mexico, he said.

Net credit losses in consumer banking has jumped tenfold in Latin America and 61 percent in Asia, though that movement is on dollar amounts that are small to the bank’s overall holdings.

Traditionally consumer finance problems move from the United States to foreign markets six to nine months later, said Vincent Breitenbach, head of credit research in the Americas for Barclays Capital. David Jiang, a credit research analyst at Barclays, said international lending is something he is watching as he analyzes banks.

“International has not yet shown the same cracks we’ve seen in North America,” Mr. Jiang said. “If we start to see a similar level of deterioration, it’s just another problem the banks have to contend with."

At Citigroup, the global Achilles’ heel seems to be in its credit cards business. The biggest shortfalls are in North America, where during the last year the bank has charged off more than $2 billion of its loans there and reserved more than $1 billion for future loan losses. Those charges have helped push the bank’s net income in the region down by 75 percent.

But credit card income in Europe, the Middle East and Africa fell by 64 percent during that same period, even as revenues have grown. That disparity is caused by large charge-offs and loss reserves set aside for the region on the expectation that more credit card debt will sour there.

While foreign markets are not at the forefront of banking problems, economists have been predicting slower growth in nearly every region of the world.

Standard & Poor’s Equity Research predicts that Europe’s gross domestic product will grow at 1.7 percent this year, down from 2.7 percent last year, and that growth in Latin America will slow to 4.6 percent, from 5.2 percent. Even China and India are predicted to slow. Profit growth tends to track economic growth.

At Citigroup, a global slowdown could affect other parts of its business. Mr. Crittenden said the bank’s earnings in its global wealth management division were hurt in the second-quarter because of the decline in the stock markets in India and China.

Foreign loan-loss reserves and net credit losses at Citigroup are just barely starting to inch upward. Most of the foreign increase in credit cards was in Mexico and Brazil. In consumer banking, the problem was in India, where residential mortgages hit trouble.

Economists said it was too early to see much foreign impact on company earnings.

“The epicenter, if you like, of the problems in the economy is in the U.S. at the moment,” said Paul Sheard, global chief economist at Lehman Brothers. “But we’re looking for a slowdown across the board. While growth is still quite strong in a lot of these economies, they are running into stronger headwinds.”