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Today, the stock market took another big hit, and all the major industries lost more than 2 percent. The market was reacting to news about inflation, some weaker-than-expected retail sales numbers, and a bad earnings report from Citigroup. The financial services giant said it lost nearly $10 billion during the last three months of 2007. Much of the loss occurred because of the subprime mortgage crisis that's been battering the U.S. banking sector for months. There is also a new wrinkle, a rise in defaults on consumer loans and credit cards. More on that from NPR's Jim Zarroli.
JIM ZARROLI: It fell to Citigroup CEO Vikram Pandit to announce the bad news after just a month on the job. The bank had racked up more than $22 billion in bad loans last quarter, which wiped out any profit the bank made and left it with a big loss. In a conference call with analysts, Pandit said most of the losses were in mortgage-backed securities.
Mr. VIKRAM PANDIT (CEO, Citigroup): Steady fourth quarter is also unacceptable. We need to do better, and we will do better.
ZARROLI: Pandit said he was still studying the sprawling corporate landscape that is Citigroup, and once he had done so, he would come up with a comprehensive plan to get the company's finances in order. That could mean selling off part of the company. In the meantime, he said Citigroup was cutting the dividend it pays shareholders and eliminating 4,200 jobs. Bert Ely is a banking consultant who has worked for Citigroup in the past.
Mr. BERT ELY (Bank Consultant): They're going in there and they're looking at their various lines of business and are selling off assets where it makes sense to do so.
ZARROLI: Ely believes the company has made some progress in cleaning up its balance sheet, which has been cluttered with a confusing array of leveraged debt products. Citigroup officials told investors they've done something else too. They've attracted an additional $12.5 billion from big investors. The largest share will come from the Government of Singapore Investment Corporation. By doing all this, Citigroup is clearly hoping it can show shareholders it is addressing its problems. But the efforts seemed to fall short, and Citigroup's shares ended the day down 7 percent.
Mr. JAMES ELLMAN (President, Seacliff Capital): The real problem now is that the pain is migrating from Wall Street to Main Street.
ZARROLI: James Ellman heads Seacliff Capital, a hedge fund that invests in financial services companies, though not in Citigroup. He says a lot of shareholders were probably unhappy about the dividend cut. But Ellman said something else may have disturbed them, too. Citigroup said it'd seen a big increase in defaults for certain kinds of consumer loans, evidence of how much the economy has slowed.
Mr. ELLMAN: Now, unfortunately, the problem is migrating to credit card portfolios, auto loan portfolios, and small commercial real estate portfolios. And unfortunately, that will cause significant pain for Citi, as well as for many other large banks in the United States.
ZARROLI: Citigroup says the losses on the consumer loans have been offset by gains in the revenue it makes in the booming overseas economies. But unless the mortgage crisis ends soon - something few people expect — 2008 is likely to be a tough year for the company.
Jim Zarroli, NPR News, New York.