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Citigroup profits are even worse

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Doug Krizner: Ericsson is not the only company to rattle investors. Yesterday, Citigroup reported its biggest earnings decline in three years, and mistakes costing the bank $3 billions. Chris Farrell reports.

Chris Farrell: The numbers are stunning. Citigroup said its third-quarter profits plunged by 57 percent. More bad news is on the way with Merrill Lynch, UBS, and Washington Mutual — warning investors to expect losses totaling a combined $10 billion or so.

Now, the expected earnings bath was being blamed on subprime mortgages gone bust.

Ross Levin: The incentive is to say, “Let’s get as much bad news out as we can, let’s take our hit, and then move on from there.”

Ross Levin is president of Accredited Investors in Edina, Minn.

Indeed, Citi had forewarned investors last week to expect bad news.

Levin: We’re saying we’re gonna have one terrible quarter, and from there, from that very bottom, we’re gonna be able to work our way out. And as a result, remember the market doesn’t react to events, it predicts it events. And so what the market is gonna do is say, “OK, well you’ve written off all this bad stuff, so now the future is rosy.”

But investors aren’t buying the “kitchen sink” approach to corporate earnings. Not now.

Frank Braden is an equity analyst at Standard & Poor’s:

Frank Braden: On the conference call today, what you saw is . . . it just looks like coming out of this trough is gonna take longer than many people expected.

If it wasn’t clear before, it is now — there’s a lot more going wrong at Citi than subprime and leveraged trading losses. Its investment banking business is lagging.

More important, its bread-and-butter consumer banking business isn’t doing well. Credit crunch or no credit crunch, profits are down sharply at its basic consumer business of home-equity loans, mortgages, and credit cards.

Frank Braden believes Citi isn’t unique:

Braden: But it’s still gonna be a rough fourth quarter. Things aren’t gonna snap back right away.

The twin pincers of tighter lending standards and a housing slump suggest earnings will be squeezed by more cautious borrowers and lenders alike in coming months.

For Marketplace Morning Report, I’m Chris Farrell.

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