Citi, Merrill, JPMorgan face higher writeoffs: Analyst
NEW YORK (Reuters) – Citigroup Inc, Merrill Lynch & Co and JPMorgan Chase & Co may face larger fourth-quarter debt write-offs than previously expected, and Citigroup may have to slash its dividend 40 percent to preserve capital, according to a Goldman Sachs & Co analyst.
"It will be a couple of quarters before the current credit crisis is fully digested by the markets," the analyst, William Tanona, wrote on Thursday.
The analyst issued his forecast after banks said they would write off more than $70 billion because of the global credit crunch, as rising mortgage and credit losses led investors to shun debt once thought safe but now deemed risky. Citigroup has 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 immediately return calls seeking comment.
In pre-market electronic trading, shares of Citigroup fell 67 cents to $29.78, Merrill fell 68 cents to $53.86, and JPMorgan fell 44 cents to $44.50.
Tanona, who rates Citigroup "sell," said the largest U.S. bank may have to write off $18.7 billion this quarter for collateralized debt obligations. That's up from his prior $11 billion forecast, and higher than Citigroup's $8 billion to $11 billion forecast. Tanona boosted his forecast for the bank's fourth-quarter loss to $1.33 per share from 52 cents.
The analyst also said Citigroup may in 2008 cut its 54-cents-per-share quarterly dividend, equal to a 7.1 percent yield, to help raise or preserve another $5 billion to $10 billion of capital. In November, Citigroup shored up capital by selling a $7.5 billion stake to Abu Dhabi's government.
Tanona said Merrill, rated "neutral," may write off $11.5 billion for CDOs 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.
Merrill on Monday announced a $6.2 billion capital infusion from Singapore's government and money manager Davis Selected Advisers.
Tanona also doubled his forecast for fourth-quarter CDO losses at JPMorgan to $3.4 billion from $1.7 billion. He cut his forecast for fourth-quarter profit to 65 cents per share from $1.04. The analyst rates JPMorgan "neutral."
Through Wednesday, shares of Citigroup, Merrill and JPMorgan were down a respective 45 percent, 41 percent and 7 percent this year.
