Two large banks heavily invested in mortgages and the corporate bond market reported Monday that they expect to post sharp declines when they report quarterly results.
Citigroup, Inc., the nation's largest bank, projects its third-quarter profit will drop 60 percent after taking losses of more than $3 billion as a result of writing down securities backed by underperforming mortgages and loans tied to corporate buyouts.
The bank also said its profits would be dampened after boosting loan loss reserves by about $2 billion.
Citigroup said third-quarter revenue will be about the same as in 2006. But it will write down about $1.4 billion of its $57 billion portfolio of leveraged loans, lose about $1.3 billion on the value of securities backed by subprime loans, and lose $600 million in fixed-income credit trading, as the bank had trouble navigating market volatility.
Citigroup's announcement was the latest disappointment resulting from this year's problems in the mortgage industry and financial markets.
Meanwhile, Swiss banking giant UBS disclosed plans to post a third-quarter loss of up to $690 million due in part to losses linked to U.S. subprime mortgages and shed 1,500 jobs by the end of the year.
Among those leaving the work force of 80,000 people as a result of the losses are the investment banking chief, Huw Jenkins, who will step down to become an adviser, and Group Chief Financial Officer Clive Standish, who will retire.
Marcel Rohner, the CEO, will takeover Jenkins' post.
"UBS operates on the principle that management is accountable to shareholders," Rohner said. "These events have led to the management changes announced today."
Subprime mortgages — home loans given to customers with poor credit history — have gone delinquent or defaulted at increasing rates this year. As investors pulled back from buying mortgage-backed and other types of debt, many banks have needed to lower the value of their loans, or get stuck holding them.
Whether the disclosures account for all of the damage wreaked on the financial organizations for the year is not known.
But analysts have predicted major banks may have decided to take hefty losses now — at the start of the fourth quarter — in order to clean up their balance sheets ahead of the new year.
The outcome was far more dire for some small financial institutions.
On Friday, federal regulators shut down a small online bank called NetBank Inc. that failed because loan defaults.
From NPR reports and The Associated Press
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