Essay: The subprime mortgage industry

Sample Essay

Due to the nature of business lines and global economic challenges (Barry and Joel, 2003), Citi had exposure to the subprime mortgage industry and its crisis did not leave Citigroup financially comfortable. But instead, the mortgage crisis made Citigroup lose money suffering considerable losses in 2007. Sadly, after Citigroup’s various transactions involving write-offs and write-downs on many of its collateralized debt obligations and mortgage-backed securities, the net income yielded was $3.6 billion a decline from $21.5 billion representing an 83 percent fall compared to the previous financial year 2006. Table1. Citigroup Income Data
Annual income data (in millions) 2003 2004 2005 2006 2007 September 2008
Net Interest Income $37,330 $41,617 $39,240 $39,488 $46,936 $40,439
Loan Loss Provision   $8,046 $6,233 $7,929 $6,738 $17,424 $22,019
Non-interest Income $34,264 $38,018 $44,402 $50,127 $34,762 $6,759
Net Income   $17,058 $16,054 $19,806 $21,249 $3,617 ($10,421)
Source: Citigroup Financial report, (2008), available at; retrieved on 21st January 2009 Furthermore, the year 2008 was not financially smiling for Citigroup, since the group posted a net loss of $10.4 billion during the first nine months. To further shade light on the indicators of the problems facing Citigroup retail banking, the selling of the group’s stakes to other outside investors in order to shore up the capital necessary to ride out the credit crunch say it all. For instance, in the month of July 2008, Citi sold non-core parts of its business in German retail banking corporations to the French firm Credit Mutuel. These are some of the key issues that ought to be tackled in relation to Citi’s strategies in managing its business operation. Therefore, in order to shed light on the core issues, the discussion shall look at the key business lines of Citigroup.
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