Citigroup To Post Deeper Than Expected 1Q Loss,Oppenheimer Says

Mar.26, 2008 in Market Outlook

Last Update: 3/26/2008 8:25:18 AM

By Ed Welsch
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Oppenheimer & Co. tripled its loss estimate for Citigroup
Inc.’s (C) first quarter Wednesday, forecasting the bank could write down another
$13 billion.

And with no end in sight for the credit crisis, Oppenheimer’s outlook for the
largest U.S. bank by assets remains grim.

“We are confident this will not be our last reduction in 2008,” Oppenheimer
analyst Meredith Whitney wrote in a research note to clients. “Rather as key
mark-to-market indices trend lower, the housing market worsens, and the U.S.
consumer comes under increasing pressure, we anticipate further downside to both
estimates and stock prices.”

Citigroup shares were down 2.3% to $22.88 in premarket trading.

Whitney now sees Citigroup losing $1.15 a share in the first quarter, worse than
an earlier estimate of 28 cents a share. The consensus of analysts polled by
Thomson Financial was for Citigroup to post a loss of 48 cents a share.

She cut her first-quarter estimates for the entire financial sector an average of
84% and full-year estimates by an average of 30%.

In addition to $13 billion in write-downs for Citigroup, Whitney predicts $4.3
billion in write-downs for Bank of America Corp. (BAC), $2.8 billion for JPMorgan
and $1.5 billion for Wachovia Corp. (WB).

After the spectacular collapse of Bear Stearns Cos. (BSC), banking analysts have
split into two camps - those who believe the U.S. financial sector has seen the
worst of the financial crisis started last summer with problems in subprime
loans, and those who think the worst is yet to come.

Last week Punk Ziegel’s Richard Bove said the Federal Reserve’s action to provide
a liquidity backstop for the banks marked an end to the crisis and a “once in a
generation opportunity to buy bank stocks.”

Others who think the Fed’s actions could stabilize the sector include JPMorgan
Chase Chief Equity Strategist Thomas J. Lee and Goldman Sachs banking analyst
William F. Tanona.

Whitney is perhaps the most prominent voice on the other side of the divide,
having gained extra weight from her contrarian - and correct - call five months
ago that Citigroup would have to cut its dividend.

She’s not alone - FBR Capital Markets analyst Paul J. Miller Jr. and Goldman
Sachs analyst David J. Kostin have both urged investors to hold off buying back
into bank stocks.

Miller on Monday cut his estimates for 21 banks, saying that despite the recent
rally in bank stocks, the problems in the credit markets have intensified. He
believes that the Fed’s actions “should help at the margin, but credit losses
will have to run through the system, putting tremendous pressure on capital
levels and earnings.”

Fox-Pitt analyst David Trone this week also cut his estimates for Goldman and
Merrill Lynch & Co. (MER), saying “it will be difficult for Goldman or its peers
to experience a strong, sustained breakout to the upside, so long as the
de-leveraging process continues and economic data is unfavorable.”

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