Citigroup's subprime losses may vault to $15 billion: Goldman Sachs
Our Corporate Bureau
19 November 2007
Mumbai: Citigroup, the largest US bank by assets, may have to write off $15 billion over the next two quarters as rising mortgage delinquencies cut into earnings, according to analysts at Goldman Sachs & Co.
The global investment banking and securities firm has downgraded Citigroup stock to 'sell' category and said it placed New York-based Citigroup on 'America's Sell List'.
The report comes after Citigroup's chief US equity strategist Tobias Levkovich upgraded the nation's banking sector to 'overweight' from 'market weight', because of "compelling valuation, depressed earnings revision data and awful investor sentiment." Citigroup has in contrast recommended that investors buy US bank stocks.
"The banks group has taken some sharp hits due to the subprime woes, and there appears to now be a pile-on effect that seems to be overdone," Levkovich wrote in a note dated November 16.
Citigroup's losses and the departure of Prince came after New York-based Merrill, the biggest brokerage, said writedowns exceeded $8 billion, spurring the ouster of CEO Stan O'Neal.
Citigroup, with more than $2.35 trillion in assets, stumbled after racking up some $55 billion of risk in businesses that invested in subprime mortgages or CDOs, stored them for resale or accepted them as collateral for loans.
"Given the dislocations in the credit markets, we have become more pessimistic," William F Tanona, Goldman Sachs' New York-based analyst, wrote to investors, downgrading New York-based Citigroup from 'neutral'. "Citigroup will likely face an increasingly challenging operating environment which is likely to pressure results in many of their businesses," he added.
The analyst also cut his price estimates for Merrill Lynch & Co., Morgan Stanley, Lehman Brothers Holdings Inc., Bear Stearns Cos., JPMorgan Chase & Co. and E*Trade Financial Corp.