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One Year Later, Citicorp Making Headway on Restructuring With BC-Citicorp-Glance

January 20, 1992

NEW YORK (AP) _ It’s been a year since Citicorp’s leaders swallowed their pride, faced up to huge mistakes and unveiled an overhaul of the nation’s largest banking company.

Bank analysts have been pleased with Citicorp’s progress so far, but say the bank’s performance this year is critical. A measure of that progress is expected Tuesday, when Citicorp is expected to release earnings for the 1991 fourth quarter and full year.

Last week, Citicorp Chairman John Reed disclosed partial results, saying the bank anticipates a loss between $125 million to $150 million for the quarter and $450 million to $475 million for the year.

Despite the large loss, Citicorp’s stock gained about 40 percent last week. Goldman Sachs & Co. and Sanford C. Bernstein upgraded their investment rating of Citicorp after Reed’s comments, citing the bank’s cost cutting, its strong consumer and global corporate finance businesses.

″After being battered, it has become a darling in the market,″ Frank Barkocy, vice president and bank analyst for Advest Inc., said last week.

Citicorp stock closed Monday unchanged at $14.62 1/2 a share.

The market wasn’t so kind to Citicorp throughout 1991. The bank’s stock came under heavy selling pressure after Reed revealed a restructuring in December 1990 and January 1991.

Under the austerity plan, Citicorp set a goal of eliminating as many as 17,000 workers, trimming expenses by $1.5 billion through 1993 and raising $5 billion in capital. Citicorp also eliminated its dividend on common stock.

The bank stunned investors in October when it reported an $885 million loss, the second worst quarterly loss in its history. The hit came after Citicorp took $930 million in special accounting charges to cover bad loans and restructure the bank’s operations.

The loss set off speculation that Reed’s job was in danger if his austerity plans didn’t work.

Brent Erensel, bank analyst for Mabon Securities Co., observed in October the bank’s decision to eliminate the dividend ″signals an end of denial and represents a catharsis of sorts.″

Erensel, like many analysts, remains edgy over Citicorp’s thin capital margins, which leave the bank vulnerable in the event of sudden loan losses.

Reed, in a telephone interview last week, said the bank’s Tier 1 ratio of risky loans and assets to capital, an important measure of a bank’s underlying strength, fell short of 4 percent in 1991.

But Reed said at the end of this year, the ratio will exceed the minimum 4 percent level required by under new international banking laws.

The bank has embarked on a two-part strategy to boost capital: cut costs and raise cash through sale of assets or stock offerings. Reed estimated Citicorp shaved $700 million off operating expenses in 1991 and eliminated 8,000 workers.

Citicorp raised about $1.5 billion in fresh capital from a variety of deals, including a private placement of stock with a Saudi prince.

It’s sold a range of interests, from subsidiaries that offer municipal bond insurance to its Italian retail bank and a share of it stake in the Saudi American Bank.

Frank Suozzo, bank analyst for S.G. Warburg & Co., said he believes Citicorp is repairing itself. He compared the bank to BankAmerica Corp. in 1986, when it underwent a grueling overhaul. BankAmerica now is one of the nation’s strongest banks.

″In terms of progress, Citicorp has made, I think, excellent (advances) in terms of expense control,″ said Suozzo.

In addition, Reed said the rate of losses in the bank’s loan portfolio ″has probably stabilized at high level, but it has stabilized.″

But Reed’s assertions don’t mean Citicorp has escaped danger.

″The economy has hurt them from growing out of their problems,″ said Suozzo. Key to Reed’s strategy is building capital through retained earnings, which requires strong cost controls and revenue growth.

Without an improvement by midyear, ″you may see a lot of high-level people beginning to leave,″ Suozzo said.

Cheryl Swaim, bank analyst for Oppenheimer & Co., is critical of Citicorp’s position, particularly with its high level of loan losses and loans written off as bad debt.

″...We continue to believe that earnings at Citicotp will be lackluster compared to other banks for the foreseeable future given the capital and reserve building needs,″ Swaim wrote in a recent report.

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