Goldman Sachs downgraded Citigroup Monday morning to “sell” from “neutral” on concerns that the banking giant could write down as much as $15 billion in mortgage-related losses over the next two quarters.
Goldman expects Citigroup to write down $11 billion in the fourth quarter, and another $4 billion in the first quarter of 2008, which after taxes could eclipse six months worth of profit.
“With deteriorating consumer and housing metrics, Citigroup is facing mounting pressure across many businesses,” analyst William Tanona wrote. “The lack of leadership at this point in Citigroup’s storied history could not have come at a worse time.”
Citigroup’s chief executive Charles Prince resigned November 4th after the bank said it would have to write off $8 to $11 billion during the fourth quarter due to subprime exposure.
Tanona cut Citigroup’s price target to $33 from $48, and his profit-per-share forecast to $3.80 from $4.65 in 2008, and to $4.60 from $5.20 in 2009.
The analyst said Citigroup may also need to nix its 54-cent dividend or look for other sources to improve capital levels.
On Friday, Citigroup strategist Tobias Levkovich upgraded the banking sector to “overweight” from “market weight,” referring to selling pressure as “overdone.”
Citi has continued to play a major role in the mortgage industry, launching its non-prime wholesale lending unit Citi Residential Lending in mid-September, and recently revamping its Mortgage.com website which it acquired through the purchase of ABN-Amro’s mortgage group.
Shares of Citi fell $1.79, or5.26%, to $32.21 in midday trading, just above their 52-week low of $31.05.