Feeling subprimal at Citi…

November 5, 2007

images-2.jpegBy now, you’d have to be in a deep trance not to have heard the news about Chuck Prince walking the plank, or as he so eloquently put it,”the only honorable course for me to take as chief executive officer is to step down” and Citigroup’s (C) plans to write off $8 billion to $11 billion as a result of Subprimania. If one more top executive is forced out — we can start taking bets on who that might be — it’s officially a trend story, based on the old rules I learned as a journalist.

With all of this other stuff going on, it seems interesting that Citi chose today to file its latest Q which used the word sub-prime 53 separate times in the 100-plus page filing. Compare that to 10-Q that Citi filed back in August, which only mentioned the S-word twice. Was it really not a problem worth much discussion only three months ago?

Of course, that wasn’t the only interesting thing in Citi’s filing. There was also the part about increasing its reserves for bad credit card debt — a story that seems to have gotten lost in Suprimania — by a more than six-fold increase to $1.3 billion which Citi explained like this:

The increase in credit costs primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, and a change in estimate of loan losses inherent in the portfolio but not yet visible in delinquencies.

It’s that last bit of the sentence, which I added emphasis to, that makes you wonder if the subprime crisis is really only part of the story at Citi: they’re seeing problems, but they’re not quite showing up in ways that are really quantifiable. At least not yet.

Of course, given that gloom and doom, what does Citi do? Why offer up reloaded stock options, of course. The exhibit was buried at the end of today’s Q. Unfortunately, it’s not clear from the filing exactly who will benefit from the reload options. There’s a quick primer on reload options here. As this story pointed out earlier this year, Prince has benefited from reloaded options before. Whether he’ll get more reloaded options before officially leaving the auditorium remains to be seen.

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