Analysts see big Q2 writedowns for Citi, Merrill

(Reuters) - Citigroup Inc (C.N) may write down $8.7 billion and Merrill Lynch & Co Inc MER.N $4.5 billion in the second quarter, according to analysts at UBS, who also forecast a second-quarter and full-year loss for both companies.

The brokerage expects about $1.4 billion of write-downs for JPMorgan Chase & Co (JPM.N) and said though the bank had fared relatively better than most in the financial crisis, it had plenty of vulnerable consumer exposures.

JPMorgan's second quarter will also include the Bear Stearns consolidation, which the brokerage expects to be "messy and a drag on results."

"Further weakening of the macro environment suggests to us that credit costs will continue to head higher, incremental reserve build is likely and credit costs will likely remain at elevated levels throughout 2009," UBS said in a note to clients.

Analysts till date have expected Citigroup to suffer write-downs between $8 billion and $8.9 billion in the second quarter. Merrill, which has come under increasing pressure to raise capital, has been expected to write down between $3.5 billion and $5.4 billion.

UBS also said Merrill, the world's largest brokerage, may need some form of capital raise.

"We don't know MER's Tier 1 yet, but with an expected loss in 2Q, what we think is the lowest Tier 1 ratio in the group plus a single-A credit rating, we think it's more likely that MER will need do something on the capital front, though not necessarily right away," UBS said.

It slashed its price target on Merrill to $35 from $47 and expects it to post a second-quarter loss of $2.20 a share and a full-year loss of $2.55 a share, compared with its prior profit views of 55 cents a share and 50 cents a share, respectively.

UBS' new estimates reflect a likely increase in Merrill's reserves and credit valuation adjustments related to monoline exposures, additional marks on mortgage and CDO (collateralized debt obligation) exposures and losses in its private equity portfolio, among others.

The brokerage lowered its second-quarter profit estimate for JPMorgan to 40 cents a share from 62 cents, and for 2008 to $2.33 a share from $2.67. The price target was cut to $37 from $45.

The brokerage left its second-quarter and 2008 estimates for Citigroup unchanged. The quarterly estimate remains a loss of 40 cents a share, and 2008 a loss of 47 cents a share. It cut its price target to $18 from $23.

Shares of Merrill closed at $32.25 Tuesday on the New York Stock Exchange, while those of Citigroup closed at $17.13 and JPMorgan at $34.02.

(Reporting by Neha Singh in Bangalore; Editing by Himani Sarkar)