Last week, we told you about big losses at the investment bank Merrill Lynch. But the losses may be even bigger at the nation's biggest bank, Citigroup.
Citigroup estimated this week that it would take losses of eight billion to eleven billion dollars on investments in risky housing loans. Many people who bought houses with subprime mortgages are now unable to pay them back.
The estimated write-downs are for the bank's current period, October through December. Citigroup says they represent five to seven billion dollars after taxes. The bank reported six and a half billion dollars in credit-related losses for the third quarter of the year.
Charles Prince , Citigroup's chief executive officer, resigned under pressure on Sunday. He led the New York-based bank since 2003. He took over for Sanford Weill who built Citi into one of the world's largest financial groups.
Win Bischoff, chairman of Citi Europe and a British and German citizen, will serve as chief executive for now. Former United States treasury secretary Robert Rubin was named chairman of the board. He will help lead the search for a permanent replacement for the C.E.O.
Charles Prince was the second head of a major bank to be forced out in recent days. Last week, Stan O'Neal resigned at Merrill Lynch after his company reported a loss for the third quarter of over two billion dollars. Merrill Lynch had to write-down eight billion dollars in mortgage-related losses.
Citigroup announced that it has fifty-five billion dollars worth of investments directly related to subprime mortgages. Forty-three billion dollars of that is in complex investments called collateralized debt obligations.
A big problem for banks is putting a value on the mortgage-related securities that they hold. Investors are no longer interested in trading these securities. This has frozen the market for them. So banks like Citigroup depend on mathematical models to place a value on these complex investments.
Credit rating agencies reacted to this week's bad news. Moody's Investors Service lowered Citigroup's credit rating one level to its third highest rating. Moody's said the expected write-downs would result in a sizeable quarterly loss for Citigroup.
And that's the VOA Special English Economics Report, written by Mario Ritter. To learn more about the problems with subprime mortgages, go to voaspecialenglish.com. I'm Steve Ember.
