April 30, 2008 / 9:08 AM / 10 years ago

Oppenheimer says Citi will need to raise added capital

(Reuters) - Citigroup Inc (C.N) will need to raise an additional $10 billion to $15 billion or sell assets worth billions to truly shore up its capital position, Oppenheimer analyst Meredith Whitney said.

Whitney’s view follows Citigroup’s announcement on Tuesday that it planned to sell $3 billion of common stock to bolster its capital levels.

“The fact that Citi raised capital at this time did not come as a surprise to us, but the fact that the company raised such a small amount of capital at this time confounds us,” she wrote in a research note to clients that was dated April 29.

This raise precedes one or more significant raises to come, Whitney added. She also believes the banking giant will have to cut or eliminate its current dividend due to earnings pressure.

Last week, Citigroup sold $6 billion in preferred shares to shore up its balance sheet after the largest U.S. bank recorded more than $16 billion in write-downs and credit losses in the first quarter.

“Our biggest concern related to Citi rests squarely with its impotent earnings power,” Whitney said.

On April 18, Citigroup posted a $5.11 billion quarterly loss, while profit at its consumer banking business dropped 45 percent to $1.43 billion.

The bank’s seriously constrained earnings power will result in pressure to cut or eliminate the current dividend and to seek additional capital from outside investors, she said.

    In October of last year, Whitney correctly predicted that Citigroup would cut its dividend and raise $30 billion of capital. Citigroup cut its dividend in January by 41 percent to 32 cents per share.

    However, Chief Executive Vikram Pandit said last week he has no plans to change the bank’s dividend policy.

    Whitney, an influential analyst on Wall Street, rates Citigroup “underperform” and did not revise estimates, saying she viewed dilution from the latest move to be nothing more than a rounding error. She expects the bank to post a 2008 loss of 45 cents a share and a 2009 profit of 90 cents a share.

    Shares of Citigroup closed at $26.32 Tuesday on the New York Stock Exchange.

    Reporting by Neha Singh in Bangalore; Editing by Bernard Orr

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