Citigroup will need to write down $9bn in second quarter, analyst predicts

Citigroup may suffer second-quarter writedowns of $9bn (£4.5bn), analysts at Goldman Sachs said yesterday.

The analyst William Tanona said the banking giant, hit by more than $46bn of writedowns and credit losses in the past three quarters, may write down $7.1bn of collateralised debt obligations and associated hedges, and $1.2bn for other asset classes in the second quarter. It may also need to write down $600m for structured note liabilities.

The report weighed on Citi's shares, which fell 6.3 per cent to hit their lowest level in almost 10 years in New York.

"We see multiple headwinds for Citigroup including additional writedowns, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts or asset sales," Mr Tanona said, adding Citigroup to the Goldman's "conviction sell" list of stocks.

Mr Tanona reduced his price target for Citigroup sharesto $16 from $20, and expectsthe group to lose 75 cents per share this quarter, compared with an earlier prediction of 25 cents per share profit. For the full year, he anticipates a loss of $1.20 per share. His previous forecast was for a 30 cent per share profit.

Goldman also suggested that Citi may need to reduce its quarterly dividend, which has already been lowered once this year to 32 cents per share. "Given the firm's current level of earnings power, we do not believe the dividend is safe," Mr Tanona said, pointing out that halving the current dividend could save $3.5bn of capital annually.

Citigroup declined to comment, but sources close to the company said the Goldman report "lacked detail".

Mr Tanona said: "We arehard-pressed to find a catalyst that will move the group significantly higher over the next few months as fundamentals continue to deteriorate. In addition, we also believe a recovery will take longer than originally anticipated."

Beside Citigroup, Mr Tanana said Merrill Lynch may post a second-quarter writedown of $4.2bn. He anticipates a quarterly loss of $2 per share at Merrill, compared with a previous estimate of 25 cents per share profit.