Goldman’s William Tanona predicts further sizable losses at major brokerage firms, with Citi and Merrill taking particularly large hits. Tanona also expects Citigroup to cut its dividend. From Bloomberg:
Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. may write down an additional $34 billion in securities linked to the collapse of the subprime mortgage market, according to Goldman Sachs Group Inc.
Citigroup, the biggest U.S. bank, may reduce the value of its holdings by $18.7 billion in the fourth quarter and cut its dividend 40 percent, Goldman analyst William Tanona said in a Dec. 26 report on the New York-based companies. JPMorgan Chase & Co., the third-largest U.S. bank, may write off $3.4 billion, double Goldman’s previous estimate. Merrill Lynch & Co. may reduce its holdings by $11.5 billion, he wrote.
Losses and writedowns at the world’s biggest banks and securities firms total $97 billion this year, according to data compiled by Bloomberg…
“It will be a couple of quarters before the current credit crisis is fully digested by the markets,” wrote Tanona, who has a “sell” rating on Citigroup’s stock and a “neutral” rating on JPMorgan and Merrill. “Given the magnitude of the writedowns we assume and Citi’s remaining exposure, we believe the firm has a serious need to preserve or raise additional capital.”
Tanona downgraded Citigroup’s shares on Nov. 19 and was the last of six analysts who follow the company to advise clients to sell the stock. Nine analysts rate Citigroup a “buy” while eight recommend holding the stock, according to Bloomberg data…
Writedowns at the biggest banks are still likely to be “significantly larger than investors are anticipating,” Tanona wrote…
Tanona previously had estimated that Merrill, which replaced CEO Stan O’Neal with John Thain, would have to write down $6 billion of securities.
“Many of the December year-end firms are likely to be more aggressive with their marks,” Tanona wrote. “Particularly those with high levels of exposure such as Citi and Merrill Lynch, both of whom have new CEOs at their helms.”
Sanford C. Bernstein & Co. analyst Brad Hintz estimated in a note dated today that Merrill will have a CDO-related writedown of $10 billion in the fourth quarter.