NEW YORK (Reuters) - Citigroup Inc (C.N) shares suffered a fresh beating on Monday after Goldman Sachs & Co downgraded the stock to “sell” from “neutral,” and said the largest U.S. bank may have to write off $15 billion over the next two quarters as mortgage losses reduce earnings.
Shares of Citigroup fell as much as 5.9 percent, leading a broad decline in financial services stocks. They had slid 29 percent in the previous five weeks.
Monday’s report from analyst William Tanona came shortly after Citigroup’s own chief U.S. equity strategist, Tobias Levkovich, upgraded the nation’s banking sector to “overweight” from “market weight,” calling selling pressure “overdone.”
Goldman’s forecast compares with the $8 billion to $11 billion that Citigroup on Nov. 4 said it may write off this quarter for exposure to subprime mortgages and collateralized debt obligations. Charles Prince, Citigroup’s chief executive, resigned the same day.
“With deteriorating consumer and housing metrics, Citigroup is facing mounting pressure across many businesses,” Tanona wrote. “The lack of leadership at this point in Citigroup’s storied history could not have come at a worse time.”
Tanona projected write-downs of $11 billion this quarter and $4 billion in the first quarter of 2008. A $15 billion loss would, after taxes, wipe out close to six months of profit.
“(Citigroup’s) risk-taking culture may be irreparably damaged,” Tanona wrote.
Tanona said the bank may need to cut its 54-cents-per-share quarterly dividend or find new capital to shore up capital levels. He also cut Citigroup’s price target to $33, and his profit-per-share forecast to $3.80 from $4.65 for 2008, and to $4.60 from $5.20 in 2009.
The analyst also lowered his price targets for six other banks and brokerages: Bear Stearns Cos BSC.N, E*Trade Financial Corp (ETFC.O), JPMorgan Chase & Co (JPM.N), Lehman Brothers Holdings Inc LEH.N, Merrill Lynch & Co MER.N and Morgan Stanley (MS.N).
Citigroup shares were down $1.94, or 5.7 percent, to $32.06 in afternoon trading on the New York Stock Exchange, after falling to $32.00. The 24-member Philadelphia KBW Bank Index .BKX was down 1.9 percent. Citigroup shares touched $31.06 on Nov. 8, their lowest level since March 2003.
Banks have announced more than $50 billion of write-downs tied to the U.S. housing slump, as defaults soared and the value of mortgages that investors deemed too risky plummeted.
UBS AG UBSN.VX, Switzerland’s largest bank, might face “substantial” losses on some $20.2 billion of highly-rated CDOs, independent research firm CreditSights Inc said on Monday.
The projected $8 billion to $11 billion write-down at Citigroup is on top of a top of a $1.83 billion mortgage-related loss that the New York-based bank took in the third quarter.
Citigroup also provided $7.6 billion of financing as of Oct. 31 to so-called structured investment vehicles after they were unable to pay down maturing short-term debt, according to a Nov. 5 regulatory filing.
The bank said on Nov. 4 it had no plans to cut its dividend.
Following Prince’s departure, former U.S. Treasury Secretary Robert Rubin became Citigroup’s chairman, while Sir Win Bischoff, the bank’s top Europe executive, became interim chief executive.
Among 19 analysts who cover Citigroup, eight rate it “buy” or the equivalent, seven rate it “hold” and four rate it “sell,” Reuters Estimates said. Analysts, on average, expect profit per share of $4.29 in 2008 and $4.32 in 2009, it said.
Citigroup strategist Levkovich on Nov. 16 upgraded the banking sector, citing its “compelling valuations and beaten down earnings estimate revisions, not to mention repulsive sentiment around these stocks, a contrarian signal.”
Levkovich also wrote that worries about subprime exposures have created a “pile-on effect that seems to be overdone.” He admitted his upgrade may seem “fairly controversial.”
Reporting by Jonathan Stempel; Editing by Brian Moss