Citigroup shares fall after broker downgrades
NEW YORK (Reuters) - Citigroup Inc (C.N) shares fell nearly 7 percent on Thursday after Credit Suisse and CIBC World Markets downgraded the largest U.S. bank, with CIBC citing concern Citi might have to cut its dividend to boost capital.
Amid record composite trading volume, Citi shares fell $2.85 to $38.51, their lowest level since May 2003 and their biggest one-day drop since September 2002, when the company was swamped with regulatory concerns.
The share moves followed another downgrade, by Morgan Stanley on Wednesday, and come amid fears that the bank could face further losses from collateralized debt obligations and other subprime mortgage-related securities.
CIBC analyst Meredith Whitney, who cut her recommendation on the bank to "sector underperformer" from "sector performer," said in a note issued late Wednesday that the bank might have to sell assets, raise capital or cut its dividend to raise $30 billion of capital.
Credit Suisse analyst Susan Katzke, who downgraded the bank to "neutral" from "outperform," said Citi's capital was constrained and expects a more aggressive balance sheet rationalization in the coming months.
"The opportunity in this stock rests in prospects for organizational change, that is, a break-up of Citi into several separate, more manageable or saleable businesses," Katzke said.
Citi earlier this month reported a 57 percent drop in third-quarter profit, renewing speculation about the job security of Charles Prince, its chief executive.
The fourth quarter is widely seen as crucial for Prince and the bank, which investors once hoped had put the worst of the subprime crisis behind it in the third quarter.
Whitney, who also cut her 2008 and 2009 earnings estimates for the bank, said cuts to the dividend or other moves to bolster capital will place Citi's stock under significant pressure, pushing it into the low $30s, she added.
Citi shares are down over 30 percent so far this year.
Punk Ziegel analyst Richard Bove said in a separate note that he was not concerned about the bank's liquidity or its capital positions.
"Plus, $30 billion sounds like a great deal of money but it is not so much to Citigroup. Thirty billion dollars is 1.3 percent of assets," Bove added.
Still, Bove, who has a "sell" rating on the stock, said he would not want to buy the stock as he expects earnings to be below expectations for the next three quarters.
On Wednesday, Morgan Stanley analyst Betsy Graseck cut her rating on Citi to "underweight" from "overweight," citing concerns about the bank's thin capital levels.
Graseck was also concerned about Citi's collateralized debt obligation portfolio, subprime consumer exposure and structured investment vehicle exposure.
About 169 million Citigroup shares traded hands on Thursday, the highest volume since July 2002, when there were reports that Citi had concealed Enron losses.
(Additional reporting by Tenzin Pema in Bangalore and Dan Wilchins in New York)
