April 18 (Bloomberg) -- Citigroup Inc. posted a $5.11 billion first-quarter loss, less than analysts' most pessimistic estimates, and cut 9,000 jobs, sending its shares higher and sparking a rally in U.S. stocks and the dollar.

Citigroup, the biggest U.S. bank by assets, reported almost $16 billion of trading writedowns and increased bad loan reserves as customers fell behind on home, car and credit-card payments. The New York-based company's net loss of $1.02 a share compared with an estimate of $1.66 by Merrill Lynch & Co.'s Guy Moszkowski, Institutional Investor's top-rated brokerage analyst, who had predicted an $18 billion writedown.

``People are assuming the worst,'' Walter Todd, a portfolio manager at Greenwood Capital Associates, said in an interview on Bloomberg radio. ``Expectations are low enough that you can have some positive stock performance even off a bad number.''

Vikram Pandit, Citigroup's chief executive officer, said today he was ``not happy'' with the results. He said he's selling assets to free up capital and shedding units outside the company's ``core'' retail banking, trading, investment-banking and transaction-processing businesses.

Since replacing former CEO Charles O. ``Chuck'' Prince five months ago following a record fourth-quarter loss of almost $10 billion, Pandit has cut holdings of subprime-infected ``collateralized mortgage obligations'' by 23 percent and pared money-losing leveraged-buyout loans by 35 percent. He's hired seven senior executives to monitor trading risks.

Auction-Rate Losses

Pandit ``is doing the right things in our eyes,'' said William B. Smith, president of Smith Asset Management LLC in New York, which oversees about $80 million, including about 66,000 Citigroup shares.

Citigroup climbed $1.08, or 4.5 percent, to $25.11 in New York Stock Exchange composite trading, after surging as much as 8.2 percent earlier today. The Standard & Poor's 500 Index rose 1.8 percent and the dollar gained the most against the euro in more than two weeks. Even with today's gain, Citigroup's shares are still down almost 7 percent since Jan. 15, when the bank posted a $9.88 billion fourth-quarter loss.

Revenue fell 48 percent to $13.2 billion, compared with the average estimate of $11.1 billion from analysts surveyed by Bloomberg. Results included $7.6 billion of writedowns and credit costs on mortgages and bonds, $1.5 billion on leveraged buyout loans and $1.5 billion on auction-rate securities.

The bank wrote down the value of assets it absorbed last year from so-called structured investment vehicles by $212 million and marked down the value of bond insurance contracts by $1.5 billion.

Old Lane Redemptions

While the writedowns stuck Citigroup's trading and investment-banking division with a loss for the period, revenue climbed by 16 percent in both the consumer and wealth-management businesses. Citigroup's alternative-investment division, which Pandit used to run, reported a net loss of $509 million. The bank said today it will offer investors the chance to seek redemptions from its Old Lane multistrategy hedge fund, citing the ``change in management'' since Pandit was promoted to CEO.

The company benefited in the quarter from a $633 million gain on its stake in Visa Inc., which went public in an initial stock offering in March, and a $663 million gain on the sale of shares in Redecard SA, a Brazilian credit-card transaction processor.

Citigroup's writedowns and credit losses from the collapse of the subprime mortgage market now total almost $40 billion, more than those reported by Zurich-based UBS AG and Merrill. The charges bring the total charges for the world's biggest banks and brokerages to more than $260 billion since the beginning of last year.

Rising Delinquencies

Wall Street CEOs including JPMorgan Chase & Co.'s Jamie Dimon, Goldman Sachs Group Inc.'s Lloyd Blankfein, Lehman Brothers Holdings Inc.'s Richard Fuld and Morgan Stanley's John Mack have said they're optimistic the worst of the credit crisis may have passed.

Pandit was more somber. ``We expect the economic news to be challenging,'' he said today.

Citigroup set aside about $1.8 billion to increase reserves for bad consumer loans, saying the housing market decline and rising unemployment were putting more borrowers behind on payments. Delinquencies rose on mortgages, unsecured personal loans, credit cards and auto loans.

The bank plans to eliminate 9,000 jobs in the next 12 months, Chief Financial Officer Gary Crittenden said today in an interview. That includes 2,000 of the 6,200 cuts the bank has already announced. Additional cost reductions are likely to be announced in future quarters, Crittenden said.

Tier 1 Capital

To replenish capital -- the cushion that regulators require banks to keep to safeguard deposits -- Pandit has sold equity to investment funds controlled by the governments of Abu Dhabi, Kuwait and Singapore. In all, he has raised at least $30 billion. The prospect of further infusions has weighed on the stock because they would dilute earnings for existing shareholders.

Citigroup's Tier 1 capital ratio -- a financial measure regulators use to monitor a bank's ability to withstand loan losses -- rose to 7.7 percent at the end of the quarter from 7.1 percent at the end of 2007. The minimum for a ``well- capitalized'' rating from U.S. regulators is 6 percent. Citigroup sets its own target at 7.5 percent, partly to assure its AA- rating from Standard & Poor's.

Standard & Poor's said today it is reviewing Citigroup's rating for a possible downgrade, noting that earnings may be further depressed by loss reserves on the bank's loan portfolio. Fitch Ratings lowered the company's rating one level to AA- from AA today, with a negative outlook. Fitch cited deteriorating earnings in the consumer business and investment bank losses.

Narrowing Spreads

Credit-default swaps tied to Citigroup's bonds dropped 22 basis points to 95 basis points, according to broker Phoenix Partners Group, the lowest in more than two months. The contracts, which gauge investors' belief in the company's ability to repay its debt, fall as confidence improves.

The extra yield, or spread, investors demand to own Citigroup's $4 billion of 6.125 percent notes due in 2017 instead of similar-maturity Treasuries narrowed 7 basis points to 224 basis points, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt rose 0.4 cent to 101.1 cents on the dollar, Trace data show. A basis point is 0.01 percentage point.

Created a decade ago from the merger of Citicorp and Travelers Group Inc., Citigroup slumped 54 percent in New York trading during the past year as credit-market losses piled up. The decline led to the ouster of the 58-year-old Prince, who served as CEO for four years, as Citigroup's market value fell below those of Bank of America Corp. and JPMorgan.

Pandit's Path

New York-based JPMorgan reported first-quarter earnings earlier this week of $2.37 billion, matching analysts' estimates.

Pandit, 51, is close to the end of a six-month companywide review that has taken him to offices in Warsaw, Istanbul and Seoul. He put former Morgan Stanley colleague John Havens in charge of trading and investment banking, moved U.S. consumer head Steve Freiberg to head a new credit-card division and recruited former Wells Fargo & Co. executive Terri Dial to oversee consumer banking in the U.S.

He also is taking steps to free up additional capital by selling assets such as $12 billion of leveraged-buyout loans and announcing a plan to pare U.S. mortgage holdings by $45 billion this year. Under Prince, Citigroup's balance sheet swelled by $689 billion, an amount larger than the entire balance sheet of Wells Fargo & Co., the fifth-biggest U.S. bank. Total assets stood at $2.2 trillion at the end of last year.

Capital Cushion

``Pandit is doing what needs to be done, focusing on capital management, allocating capital to areas that he wants to grow and exiting businesses that he doesn't think are core to the overall franchise,'' said Peter Kovalski, portfolio manager at Alpine Woods Investments in Purchase, New York, which oversees about $12 billion and holds about 32,000 Citigroup shares. ``The variable he has no control over is the global economy.''

Oppenheimer & Co. analyst Meredith Whitney wrote in a March 27 report that Citigroup's growing consumer-loan losses may force it to raise more capital.

Crittenden said in January that the bank wouldn't need to raise more capital, and that its assumptions were ``stress- tested'' against a range of economic conditions, including ``multiple recessionary scenarios.''

`Silver Bullets'

Asked today if the bank might seek an additional infusion, Crittenden said, ``You can never say never.''

Merrill analyst Moszkowski has said he believes Citigroup has a capital cushion of about $17 billion ``above and beyond'' what was needed to offset writedowns recorded last year.

When it announced year-end earnings in January, Citigroup slashed its dividend for the first time since the 1998 merger. The 41 percent reduction allowed the bank to retain about $4.4 billion of additional capital per year.

Citigroup may soon have to cut its dividend again, according to Whitney, who was one of the first analysts last year to predict the depth of the credit crisis.

``This is a difficult business environment,'' Crittenden said on the conference call. ``There are no easy solutions here, no silver bullets.''

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: April 18, 2008 16:52 EDT