Citigroup Inc plans to dip into funds that it set aside against bad mortgages in its Citi Holdings unit "sooner rather than later," Chief Financial Officer John Gerspach said, in a move that should reduce the unit's drag on profits.
Citi Holdings houses mortgages and other businesses that the third-largest U.S. bank is winding down after they produced huge losses during the financial crisis. The bank set aside money to cover losses from the loans, and releasing those reserves would help offset other losses in the unit. Citi Holdings lost $3.7 billion in 2012.
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Gerspach, speaking at an investor conference on Tuesday, indicated the reserve releases likely would not come in the first quarter but would not have to wait until next year in the current economic environment. Citi Holdings is not likely to break even in 2013, he added.
In a report earlier on Tuesday, Bernstein Research analyst John McDonald said Citigroup could start releasing some of its $8.4 billion in U.S. mortgage reserves in the next two quarters. An improvement in mortgage delinquencies and losses would drive the move, McDonald wrote.
Another way Citi Holdings could move toward breaking even would be "dealing with" ongoing claims from mortgage finance providers Fannie Mae and Freddie Mac, Gerspach said. The two government-owned enterprises have been requesting that Citigroup and other banks buy back soured loans they sold to the two mortgage finance companies during the housing boom.
"I do think that it is an issue that not only the industry but also Fannie and Freddie are interested in putting to an end," he said.
Fannie Mae's recent settlement with another large bank is a sign that "the industry could be able to get this element behind us in 2013 or perhaps the early part of 2014," Gerspach said. Fannie Mae said in January that it settled with Bank of America Corp. .
In the fourth quarter, Citigroup added $179 million to its repurchase reserves, which now total $1.6 billion.
(Reporting By Rick Rothacker in Charlotte, North Carolina; Editing by Leslie Adler)