When, on January 16, Citi chief executive Vikram Pandit unveiled $18 billion of write-downs at the bank’s annual results briefing, he told analysts "we want to be transparent with you on the risks we have" and promised "we will be very candid with you". But it isn’t easy making sense of the figures, understanding in straightforward terms how big a write-down the bank has taken on precisely what exposures and on the basis of what calculations from observed market prices or proprietary models.
Citi disclosed that it had direct sub-prime exposure – made up of CDOs of ABS, sub-prime loans held for securitization, financing collateralized against sub-prime and other warehoused inventory – of $54.6 billion at the end of the third quarter of 2007. It reduced this, through $18.1 billion of write-downs for the final quarter of the year and then made some small sales, to leave it with $37.3 billion of total exposure at the start of 2008.
Simple maths suggests that the bank is now carrying this toxic waste at 68% of original value. So it has hardly kitchen-sinked the problem, even though it appears to be carrying the mezzanine super-senior CDO exposure, initially valued at $8.3