Citigroup, Merrill, JPMorgan To Face Larger Q4 Write-Offs

Source : The Business Times, December 28, 2007

Citigroup may slash dividend by 40% to preserve capital

(NEW YORK) 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 per cent 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 yesterday.

The analyst issued his forecast after banks said they would write off more than US$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 former 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 US cents to US$29.78, Merrill fell 68 cents to US$53.86, and JPMorgan fell 44 cents to US$44.50.

Mr Tanona, who rates Citigroup 'sell', said the largest US bank may have to write off US$18.7 billion this quarter for collateralised debt obligations (CDOs).

That's up from his prior US$11 billion forecast, and higher than Citigroup's US$8 billion to US$11 billion forecast. Mr Tanona boosted his forecast for the bank's fourth-quarter loss to US$1.33 per share from 52 US cents.

The analyst also said Citigroup may in 2008 cut its 54-cents-per-share quarterly dividend, equal to a 7.1 per cent yield, to help raise or preserve another US$5 billion to US$10 billion of capital.

In November, Citigroup shored up capital by selling a US$7.5 billion stake to Abu Dhabi's government.

Mr Tanona said Merrill, rated 'neutral', may write off US$11.5 billion for CDOs this quarter, up from his prior US$6 billion forecast, as Mr Thain tries to clean up problems now rather than let them fester in 2008. The analyst expects a fourth-quarter loss of US$7.00 per share, up from his prior US$1.50 forecast.

Brad Hintz, a Sanford C Bernstein & Co analyst, separately yesterday predicted a US$10 billion fourth-quarter write-off at Merrill, leading to a US$5.10 per share quarterly loss.

Merrill on Monday announced a US$6.2 billion capital infusion from Singapore's government and money manager Davis Selected Advisers.


Mr Tanona also doubled his forecast for fourth-quarter CDO losses at JPMorgan to US$3.4 billion from US$1.7 billion. He cut his forecast for fourth-quarter profit to 65 US cents per share from US$1.04.

The analyst rates JPMorgan 'neutral'. Through Wednesday, shares of Citigroup, Merrill and JPMorgan were down a respective 45 per cent, 41 per cent and 7 per cent this year. -- Reuters