March 6 (Bloomberg) -- Citigroup Inc., the fourth-largest U.S. home lender by new loan volume, plans to pare its U.S. residential unit's mortgage and home-equity holdings by about $45 billion, or 20 percent, over the next year.

The Citigroup division will decrease its total holdings mainly by making fewer loans that can't be sold, CitiMortgage Inc. President Bill Beckmann said in an interview today. The assets will drop as existing loans are repaid, he said.

``We will look for opportunistic sales, but we're not counting on that, considering current market conditions,'' Beckmann said. Citigroup plans to be selling about 90 percent of the home loans that the company makes through his unit by the third quarter, up from 65 percent last year, as new portfolio lending drops 50 percent, according to a statement today.

The New York-based bank's plan will further cut financing available to U.S. borrowers, as investors flee even government- guaranteed mortgage bonds. Lenders including Wells Fargo & Co. and Countrywide Financial Corp. have already restrained direct home lending, depressing prices for mortgage securities and making it more costly for consumers to obtain loans.

``For a long time there was a lot of cash sloshing around the markets, and that cash has dissipated,'' Darcy Morrison, who analyzes asset-backed securities at Wachovia Corp.'s Tattersall Advisory Group, said in an interview today. ``Banks aren't writing mortgages faster than they can breathe anymore.''

Pandit's Push

Citigroup's move reflects Chief Executive Officer Vikram Pandit's push to avoid holding assets that don't generate high returns, Beckmann said in the interview. Pressure on the company's capital from the credit-market contraction is speeding a reduction in mortgage holdings that would have occurred eventually, he said.

The largest U.S. bank by assets posted a record loss of $9.8 billion in the fourth quarter. It raised $7.5 billion in November from Abu Dhabi and said in January it was getting another $14.5 billion from investors including Singapore and Kuwait. In January, Citigroup announced a 41 percent dividend cut.

The company will probably report a loss again in the first quarter, according to analysts at Merrill Lynch & Co. and Goldman Sachs Group Inc.

Citigroup said today it will save $200 million within 12 months as a result of the merger of its various U.S. mortgage businesses. The combination was announced in January. Beckmann declined to say how many jobs would be cut.

Capital Needs

The company's shares, down 58 percent over the past 12 months, fell 98 cents, or 4.4 percent, to $21.17 in New York Stock Exchange trading today.

After being battered by record U.S. foreclosures, banks and securities firms have sold stakes to raise $105 billion of capital. Mortgage-related losses since the beginning of last year at the world's largest banks and brokers amount to more than $180 billion, led by Citigroup's $24.5 billion.

Paring back mortgage holdings may help reduce Citigroup's capital needs by $4 billion to $6 billion, said David Hendler, a bank analyst in New York at CreditSights Inc.

CitiMortgage is tightening lending policies, the company said today. The unit is cutting back on home-equity loans made through brokers, raising down-payment requirements in markets with falling prices and dropping loans on three- and four-family homes that borrowers won't live in, according to the firm's statement.

Market Share

Citigroup's $198 billion of mortgage originations last year ranked behind Countrywide, Wells and JPMorgan Chase & Co., according to newsletter Inside Mortgage Finance. Citigroup's market share totaled 8.6 percent. Total new loan volumes fell 18.5 percent to $2.4 trillion when demand for non-agency mortgage bonds vanished amid unprecedented price drops and credit-rating downgrades.

The reorganization of the company's mortgage businesses doesn't affect lending through the company's CitiFinancial unit, which focuses on consumers with poor credit records. It does include the subprime-lending business Citigroup acquired from Ameriquest Mortgage Co. last year, the company said.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: March 6, 2008 20:07 EST