(10 March 2008 – USA) Citigroup has announced that it will cut back on its US residential mortgage business to free up capital for other purposes.Following from $US20 billion ($21.6 billion) in write-downs in its capital markets business, Citi is looking to sure up its operations and reduce capital exposure.
Specifically, Citi has said that is will be focusing the business on higher returns, reducing the amount of portfolio lending and reducing capital and credit exposure.
The bank also intends to increase the level of loans securitised to approximately 90 percent of production by the third quarter of 2008, up from 65 percent in 2007.
Citi will also focus on improving the quality of origination, tightening underwriting criteria and making changes to policy and process to mitigate losses and reduce risk.
The bank plans to reduce residential mortgage assets by approximately $US45 billion over the next 12 months, which is a 20 percent decrease from December 2007. It will also cut the amount of new loans to be held in portfolio by more than 50 percent in the next year.
The company will also integrate middle office and support areas to serve both first and second mortgage operations and reorganise the business in terms of sales channels and customer segments.
Citi expects these changes to reduce expenses by approximately $US200 million on a run rate basis within 12 months.