Citigroup seen taking $15B in writedowns

Goldman Sachs analyst expects the bank's writedowns to spread over the next two quarters and foresees a possible dividend cut.

Citigroup Inc. was added to Goldman Sachs "Americas Sell List" Monday morning by analyst William Tanona, as he expects the company to take as much as $15 billion in writedowns and possibly cut its dividend.

The writedowns, which are likely to be spread over the next two quarters, stem from Citigroup's exposure to complex financial instruments known as collateralized debt obligations. So-called CDOs combine slices of assets and other debt.

Many CDOs are, in part, backed by subprime mortgages - loans given to customers with poor credit history. As those loans have gone increasingly into default, the value of CDOs has declined, forcing banks to take billions of dollars in writedowns.

Tanona said deteriorating housing and consumer metrics will likely depress earnings in other areas of business, including retail banking and credit card divisions.

Citigroup might also be forced to lower its dividend or look for new sources of funding to help maintain adequate capital ratios, Tanona wrote in a research note.

Furthering the current problems is Citigroup's lack of leadership, Tanona said. Citigroup's chief executive, Charles Prince, was forced into retirement earlier in the month after the bank took more than $6 billion in writedowns in the third quarter. It plans to write down an additional $8 billion to $11 billion in the fourth quarter.

Shares of Citigroup fell 2.8 percent, to $33.06 in pre-market trading. Shares have traded between $31.05 and $57 during the past year.

Source - CNN Money