Citigroup, Merrill face bigger write-offs

By siliconindia   |   Friday, 28 December 2007, 08:00 Hrs
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New York: Citigroup, Merrill Lynch and JPMorgan Chase may face huge fourth quarter write-offs of fixed income securities. It may force Citigroup to slash its dividend 40 percent to preserve capital, according to a Goldman Sachs analyst.

"It will be a couple of quarters before the current credit crisis is fully digested by the markets," wrote William Tanona, an analyst, on Thursday.

The analyst issued his forecast after banks said they would write off tens of billions of dollars of debt in this quarter, as rising mortgage and credit losses led investors to shun debt.

Citigroup replaced Chief Executive Charles Prince with Vikram Pandit, while Merrill replaced Chief Executive Stanley O'Neal with John Thain. Citigroup, Merrill and JPMorgan did not comment on the issue.

Tanona, who rates Citigroup "sell," said that the largest US bank may have to write off $18.7 billion this quarter for collateralized debt obligations. That is up from his prior $11 billion forecast, and higher than Citigroup's $8 billion to $11 billion forecast.

In November, Citigroup shored up capital by selling a $7.5 billion stake to Abu Dhabi government. Tanona said Merrill, rated "neutral," may write off $11.5 billion for CDOs in this quarter, up from his prior $6 billion forecast, as Thain tries to clean up problems now rather than let them fester in 2008.

The analyst expects a fourth-quarter loss of $7.00 per share, up from his prior $1.50 forecast. Brad Hintz, a Sanford C Bernstein & Co analyst, separately on Thursday predicted a $10 billion fourth-quarter write-off at Merrill, leading to a $5.10 per share quarterly loss.

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