Citigroup Admits Failures in Risk Model

Citigroup has faced up to the fact that its risk management models were not functioning correctly during the summer’s credit crisis, eventually factoring in to a 57-percent drop in profit during the third-quarter, Eric Dash of the New York Times reported today.

According to the Times, Citigroup had to write off $3.55 billion from deteriorating securities prices, leverages loans and bad trading bets – a result from the company suffering heavy blows to its fixed-income – and will cause expenses to out pace revenue for the third year in a row under Chairman and CEO Charles O. Prince III.

“This quarter’s performance was well below expectations and, frankly, surprising,” Prince acknowledged during a conference call. He also noted that the bank’s risk management models failed to avoid huge trading losses.

“The losses in fixed income this quarter were within the range of potential outcomes. But obviously at the very far end of that range, as they relate to risk limits.”

What’s more, the company has also put $2.24 billion aside to cover future losses from failing mortgages and consumer loans, which is a high indicator that its reserves were depleted and it anticipated declining economic conditions, the article said.