Commentaries

The Citi dump

City landfills aren’t pretty places. Much the same can be said for Citi Holdings, the newly formed dumping ground for Citigroup’s most ailing and malodorous assets.

Earlier this year, the de facto government-owned bank created Citi Holdings as a repository for assets that it either planned on selling or would simply have a hard time giving away. In truth, Citi Holdings really isn’t a distinct company. It’s merely part of a PR strategy to get investors to focus on the businesses that are going well at Citi and which are housed in a so-called good bank called Citicorp.

But Citi Holdings holds the key to gauging just how long the bank will remain a ward of the state.

Now technically, things looked good at Citi Holdings in the second quarter, according to the results released today. But that’s only because Citi Holdings benefited from the closing of the Smith Barney joint venture with Morgan Stanley.

Strip away the $11.1 billion in pre-tax dollars from that deal and you get a good look at the problems that persist at Citi.

One of the biggest lines of business dumped into Citi Holding is the bank’s North American consumer lending operation, which includes homes, auto, student and personal loans. And the numbers for consumer lending are plain ugly. The group accounts for 83 percent of the $9.85 billion that Citi Holdings has set aside to cover losses on all credit and loan losses.

Particularly troubling is that the percentage of home loans to North American borrowers that are now delinquent is up to 6.52 percent. At the end of the first quarter the percentage of home loans past due was 5.9 percent and a year ago it was a little over 3 percent. Those numbers don’t suggest much improvement in the housing market and raise the prospect of ever higher delinquency rates as the unemployment rate creeps higher and higher.