) is contemplating to release reserves created against bad
mortgages of its Citi Holdings division. As per Citigroup CEO,
this particular move is most likely to boost the overall
profitability and achieve break-even point for the division.
Citi Holdings consists of businesses that are considered non-core
and are required to be divested. The division was created in the
aftermath of the 2008 financial crisis as part of the company's
restructuring initiatives. While Citi Holdings is a mixed bag,
its main purpose is to wind down some non-core businesses and
reduce total assets.
Citi Holdings consists of several business entities including
remaining interests in local consumer lending such as OneMain
Financial, divestitures such as Smith Barney, and a special asset
pool along with perilous mortgages.
Mortgage securities have remained a cause of concern ever since
the last financial meltdown. These risky securities have resulted
in huge losses for Citigroup. The company had set aside a
substantial provision to cover the losses. The company is now
deliberating the use of these provisions to offset losses in Citi
Holdings. In 2012, losses for the unit totaled $3.7 billion.
The reserve releases are likely to take place in the current
year, given unsettled macro economic environment. However,
management is unsure of achieving the break-even point in 2013.
Further, the CEO finds dealing with claims from mortgage finance
Federal National Mortgage Association
The Federal Home Loan Mortgage Corporation
), to be another way to achieve the break-even level for Citi
Fannie Mae and Freddie Mac approached Citigroup and a number of
other banks to repurchase loans they sold to the two mortgage
finance companies during the housing boom, thereby putting an end
to mortgage related problems.
Bank of America Corporation
) announced a settlement with Fannie Mae worth about $10.3
billion. The settlement includes the resolution of all
outstanding and potential repurchases along with other claims
relating to all major residential mortgage loans originated and
sold directly to Fannie Mae by BofA from Jan 1, 2000 through Dec
We view the use of provisions to cover losses as a tactical
measure to revive profitability. Currently, Citigroup carries a
Zacks Rank#3 (Hold).
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