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Losses Equal Write-Down Disaster for Citigroup

Analysts are forecasting that Citigroup losses will show even more write downs on subprime-related investments in the second quarter, reducing the value of its assets by $8.9 billion. The news has not been good for the nation’s largest bank and indicates more Citigroup trouble.

This is the third consecutive quarter showing Citigroup losses, and sent shares of the company’s stock to their lowest levels in more than a decade. The New York-based company has seen nearly $15 billion of losses in the past two quarters, with more than $46 billion of credit losses and write-downs since mid-2007. Now, analysts say Citigroup may write down $7.1 billion in collateralized debt obligations (CDOs) and associated hedges, and $1.2 billion for other asset classes.

A cut in Citigroup’s dividend program also is likely. This will be the second dividend cut this year. As reported June 26, 2008 on Bloomberg.com, Goldman Sachs analyst William Tanona lowered the ratings on U.S. brokerages from attractive to neutral, stating that the pace of deterioration in the financial sector is far worse than expected. Tanona also cut his six-month price target for Citigroup to $16 and put the bank on Goldman’s conviction sell list.

Goldman Sachs itself was downgraded June 26, 2008 by Wachovia, which cited renewed concerns about economic growth, slower prime brokerage business and a slowing pace of large capital raises. The downgrade caused Goldman’s stock to fall 2% to $180 in pre-market trading.

In early June of 2008, Gary Crittenden, Citi’s chief financial officer, warned of additional large write downs and credit losses in the second quarter, saying its business remained under pressure amid unprecedented market conditions. he latest news indicates Citigroup trouble is not unexpected.