Citigroup, Merrill lose nearly $8 billion

NEW YORK | Citigroup Inc. and Merrill Lynch & Co. reported almost $8 billion of losses in the third quarter as their top executives said the economic contraction will shred profit into 2009.

Citigroup, the second-biggest U.S. bank by assets, lost $2.8 billion on at least $13.2 billion of loan losses and securities write-downs, the company said Thursday. Merrill, forced to sell itself to Bank of America Corp. as markets slid, posted a $5.15 billion loss on write-downs of $13.5 billion.

Merrill Chief Executive Officer John Thain and Citigroup Chief Financial Officer Gary Crittenden signaled more pain ahead as Americans fall behind on their bills. They joined CIT Group Inc. CEO Jeffrey Peek and JPMorgan Chase & Co. CEO Jamie Dimon in saying the slowdown will last longer and strike deeper than many had previously expected.

“We are beginning to see a significant contraction in economic activity in the United States that will also impact economic growth around the world,” Mr. Thain told analysts during a conference call. “The real question is not whether or not we’re in a recession, but the real question will be how deep and how long.”

Mr. Thain, who agreed to sell his firm after a crisis of confidence in Wall Street forced Lehman Brothers Holdings Inc. into bankruptcy, had revenue of just $16 million in the quarter - a fraction of the $380 million the firm generated a year earlier.

At Citigroup, North American credit card loan chargeoffs climbed by $311 million, reflecting slower payment rates, higher bankruptcies, rising unemployment and lower recoveries on bad debt, Mr. Crittenden said during a conference call. The New York bank also added $481 million to its credit card loan-loss reserves.

“Credit card losses may continue to rise well into 2009,” Mr. Crittenden said. Citigroup still intends to cut its dividend in half to 16 cents from 32 cents, he said.

Capital One Financial Corp., the McLean, Va., bank and credit card lender, reported a third-quarter profit of $374.1 million a year after posting an $81.6 million loss on expenses tied to closing a subprime mortgage unit.

Capital One shares have fallen 24 percent this month on concerns that the U.S. economic slowdown is worsening. The company said Sept. 23 that it expected “continuing weakness” in the United States and may add $200 million to loss reserves in the third quarter.

The losses, write-downs and pessimistic assessments for next year provide more evidence that the effects of a credit crisis that brought down Lehman and Bear Stearns Cos. have spread throughout the broader economy.

“If you’re not fearful, you’re crazy,” JPMorgan’s Mr. Dimon said Wednesday after his bank’s profit slid 84 percent to $557 million. “We have to be prepared that it gets a lot worse.”