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03 October 2023

Citigroup may post 1st-qtr loss: Oppenheimer

By Agencies


Citigroup Inc may suffer its second straight quarterly loss because of more write-downs tied to subprime mortgages, risky corporate debt and consumer loans, Oppenheimer & Co analyst Meredith Whitney wrote.

Whitney, who in October correctly predicted that Citigroup would cut its dividend and raise some $30 billion of capital, said the largest US bank might lose 28 cents per share, or about $1.4 billion based on reported shares outstanding.

That compares with a profit of $5.01 billion, or $1.01 per share, a year earlier. Whitney previously forecast profit of 68 cents per share. She cut her full-year profit per share forecast to 75 cents from $2.70.

Analysts on average had expected a first-quarter profit of 62 cents per share, according to Reuters Estimates. Citigroup lost $9.83 billion, or $1.99 per share, in the fourth quarter.

Another analyst, Goldman Sachs & Co's William Tanona, said Citigroup might have $12 billion of write-downs in the first quarter. He cut his profit per share forecast to 15 cents from 40 cents.

Both analysts also cut their first-quarter forecasts for several other banks.

In early-afternoon trading, Citigroup shares fell 89 cents, or 3.5 per cent, to $24.23 on the New York Stock Exchange. Through Friday, they had fallen 53 per cent over the previous year.

Citigroup's fourth-quarter loss was its largest ever. The bank cut its dividend 41 per cent in January, a month after installing Vikram Pandit as chief executive. Pandit replaced Charles Prince, who resigned under pressure on November 4.

Whitney said Citigroup still has more than $50 billion of exposure to collateralised debt obligations related to subprime mortgages, and more than $43 billion of exposure to leveraged loans used to fund corporate buyouts.

She said it also has on its books more than $50 billion of mortgages granted to customers who borrowed more than 90 per cent of the value of their homes, and more than $33 billion of higher-risk, private-label credit card loans.

"Core fundamentals are rapidly deteriorating, liquidity has been choked, and recovery rates (on bad loans) are in the process of dropping to historic proportions," Whitney wrote.

She said Citigroup needs to sell up to $100 billion of assets, or nearly 5 per cent, to shore up its finances.

Oppenheimer analysts also cut their first-quarter profit per share forecasts by 9 per cent for Bank of America Corp, 17 per cent for JPMorgan Chase & Co, and 19 per cent for Wachovia Corp and Wells Fargo & Co.

Tanona, meanwhile, said large financial services companies he covers could suffer first-quarter write-downs of $1 billion to $12 billion each.

Many of last year's write-downs in the industry related to subprime mortgages and CDOs. But Tanona said this quarter's write-downs "will be spread across many segments of the market including subprime, Alt-A and prime," as well as commercial mortgage-backed securities and leveraged loans.

Tanona cut his first-quarter profit per share forecasts 75 per cent for Bear Stearns Cos, 27 per cent for JPMorgan, 73 per cent for Lehman Brothers Holdings Inc, 72 per cent for Merrill Lynch & Co and 24 per cent for Morgan Stanley. (Reuters)