CNN reports that Citibank delivered its worst quarterly results in its history with a $9.8B loss.

The financial giant also announced a writedown of $18.1 billion related to soured mortgage investments and a 41 percent cut to its dividend. At the same time, it said it was receiving a $12.5 billion infusion from investors in Kuwait, Singapore and the state of New Jersey.

…

Citi’s top line took a big hit. The company reported revenue of $7.2 billion for the quarter, down 70 percent from $23.8 billion a year earlier.

The results were far worse than forecast. Analysts had expected the company to report a loss of $1 a share on revenue of $10.64 billion, according to analysts surveyed by earnings tracker Thomson Financial.

Think about this for a moment: revenue for this quarter was down 70% since same period last year. Seventy percent is quite a large number.

Citigroup’s stock endured one of its worst annual performances on record last year and was the worst performing Dow component in 2007. Its shares finished the year down 47 percent.

It seems that some investors see this as an opportunity to get in near the bottom. Are things going to turn around for Citi (and the financial sector overall), or are there much deeper problems that have yet to surface?

Buckle up, for we have an interesting year ahead of us.

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CNN reports that the Federal Reserve is “ready to take ’substantive additional action’ to cut interest rates in order to support lagging economy“.

We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,” Bernanke said in prepared remarks before the Women in Housing and Finance and Exchequer Club in Washington, D.C.

However, some economists suggested that rate cuts may be too late to stop a recession.

While lower rates might provide some stimulus to the economy, they’re certainly not going to help the value of the US dollar. Didn’t ridiculously low rates get us into this mess in the first place? Let’s hope Wall Street uses this as an opportunity to lessen the pain. The cheap money just might keep the economy running on fumes for a little while longer as long as loose lending doesn’t return.

Low rates could potentially help turn things around by allowing any borrowers (individuals or businesses) to refinance their current debts and reduce payments, allowing debts to be paid off. But doesn’t our financial system (and many banker/broker commissions) depend on the continuous creation of new debt? Our economy is heavily dependent on debt - without the ability to obtain credit, most people can’t buy their shiny toys. As long as the Federal Reserve does everything in its power to ensure consumers can borrow money to spend our economy will remain healthy.

At some point down the road the debt needs to be paid back, and that could be a concern. There’s a possibility that a large number of consumers are way over their heads in debt, beyond anything we’ve seen before.

Bernanke also warned that the economic outlook for 2008 is not so good:

“Downside risks to growth have become more pronounced. Notably, the demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets,” Bernanke said.

“In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008,” he added.

It seems like somebody forgot to drink their Kool-Aid today.

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CNN (among nearly all mainstream media outlets) is reporting that investors are bracing for a tough week as the nation’s biggest banks are releasing quarterly earnings reports.

“It’s not going to be a pretty sight,” said Frank Barkocy, director of research at the investment advisory firm Mendon Capital Advisors in New York, which owns shares of a number of large banks including Bank of America and Washington Mutual.

Of the five banks and brokers scheduled to report results next week, three are expected to post a fourth-quarter loss - Merrill Lynch (MER, Fortune 500), Citigroup (C, Fortune 500) and Washington Mutual (WM, Fortune 500). JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) are expected to report a decline in quarterly earnings.

Once this is over, can we put the problems behind us? Or are we just seeing the tip of the iceberg?

One area of concern among analysts covering mortgage-focused banks like Washington Mutual and Wells Fargo is how these companies’ commercial real estate portfolios are holding up, an area that some suspect could be the next trouble spot in the credit markets.

“If it does happen, that’s another whole leg down for these banks,” said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co., regarding the possibility of a commercial real estate slump.

“If it does happen”? “Possibility of a commercial real estate slump”? We recall reading not too long ago that office vacancy rates were already increasing, indicating a ’slump’ is underway.

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Forbes reports that US Treasury Secretary Henry Paulson said there’s no simple answer to the housing crisis.

“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in excerpts of his speech released by Treasury. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”

On top of that, there’s some talk at CNN that Wall Street is calling for the Fed to lower interest rates again.

The government reported December employment figures on Friday. Only 18,000 jobs were added to the nation’s payrolls while economists were predicting job growth of 70,000. What’s more, the unemployment rate was expected to come in at 4.8 percent, up from 4.7 percent in November.

As a result of these gloomy numbers, expectations for a half-point rate cut grew Friday morning. According to futures listed on the Chicago Board of Trade, investors are pricing in a 84 percent chance that the Fed will lower the federal funds rates by 50 basis points, to 3.75 percent, at the conclusion of its two-day meeting on January 30.

It seems there’s no simple answer to any of the issues our economy is facing. In other news, Marketwatch is reporting that Anheuser Busch shipments to wholesalers are up 2%. With all the turmoil in the stock market and housing market, are people drinking their worries away? That’s a simple (although temporary) solution!

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