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CITI MORTGAGES ITS OWN FUTURE

By
Terry Keenan
Published Dec. 2, 2007, 10:00 a.m. ET

IF you’re like millions of Americans struggling to maintain a comfortable lifestyle, 2007 has been a tough year.

With adjustable-rate mortgages taking off from those low tempting-teaser rates, and with $3 a gallon gasoline and $6-a-box cereal the new reality, household balance sheets are under severe pressure.

Ironically, this week, we learned that New Yorkers have a hometown bank that can really feel their pain.

Yes, Citigroup, the company with those ubiquitous aqua-colored branch offices and the muscle behind New York’s favorite credit card, cut a deal for survival that would make legions of subprime borrowers blush.

Consider the details and decide whether the nation’s biggest and best-known bank is in any better shape than the desperate subprime borrowers profiled on the nightly news.

You see, like many Americans, Citi has been living high on the hog in recent years.

With a workforce of 327,000 and a fleet of private jets – its executive offices have sometimes been compared to the Taj Mahal.

In order to keep up with The Joneses (or The Goldmans or The Morgans for that matter) Citi mortgaged its future – loading up on risky derivatives late in the game, just as the music was about to stop. It’s timing has left the bank in dire straits, but too proud to admit its lost glory.

So rather than cut its generous $2.16 annual dividend for what would be only the second time in its 195-year history, Citi this week did what its customers often do – take out a loan at an onerous rate.

The brain-trust, led by former Treasury Secretary Robert Rubin, cut a deal with Abu Dhabi whereby the Arab emirate will lend Citi $7.5 billion at the astounding interest rate of 11 percent – higher than the crummiest of the subprime mortgages around.’

Imagine Rubin relaxing in his Park Avenue apartment when that dinner-hour phone call comes from the emirate? “Yes, we paid off our monthly balance, your Excellency. I promise, the payment is in the mail.”

Presumably when that day of reckoning comes, the current management at Citi will have flown off into the sunset on the company jets, hundreds of millions in severance securely in hand. The new guy will be forced to break-up, lay off and downsize. What becomes of Citi then? It’s anyone’s guess.

TERRY KEENAN is anchor of Cashin’ In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail [email protected].”