Citigroup stock takes fresh hit

NEW YORK – Citigroup Inc.’s stock took another thumping Monday after Goldman Sachs estimated the bank will take as much as $15 billion in writedowns over the next two quarters and recommended selling the stock.

Goldman analyst William Tanona also said Citigroup may have to cut its dividend to save money.

When Citigroup CEO Charles Prince stepped down Nov. 4, Citigroup said it expected to write down $8 billion to $11 billion in the fourth quarter, following a writedown of more than $6 billion in the third quarter.

Executives said at the time that Citigroup would not lower its dividend, even though its cash-to-debt ratios have fallen. But they did warn that writedowns could be more extensive if the credit markets worsen.

Citigroup fell $2, or 5.9 percent, to close at $32 Monday, near the bottom of its 52-week range of $31.05 to $57. Shares of the beleaguered bank – still awaiting a permanent CEO – have recently been hitting four-year lows.

“The lack of leadership at this point in Citi’s storied history could not have come at a worse time,” wrote Tanona in a research note.

Banks like Citi don’t just hold subprime mortgages, they also have money tied up in complex fixed-income instruments known as collateralized debt obligations. CDOs combine slices of debt and often have mortgage-backed assets underlying them.

Furthermore, if the housing market keeps dragging on consumer spending, Citi’s credit card and retail banking businesses could weaken, Tanona said.

Tanona lowered his 2008 and 2009 per-share profit estimates for Citi to $3.80 and $4.60, respectively, from $4.65 and $5.20.

Tanona also cut his share price target for Citi to $33 and reduced earnings estimates for the entire large-cap investment banking sector through 2009. He said the credit markets “remain extraordinarily challenging,” and that Goldman’s financial services research team sees home prices falling well into 2008.