Citigroup May Write Down $8.9 Billion, Goldman Says

By Cathy Chan

June 26 (Bloomberg) -- Citigroup Inc., the bank that's posted the biggest losses from the collapse of the U.S. mortgage market, may take an additional $8.9 billion in net writedowns in the second quarter, Goldman Sachs Group Inc. said.

Goldman also lowered its rating on U.S. brokerages to ``neutral'' from ``attractive,'' saying the pace of deterioration in the industry ``appears to be far worse than'' it originally anticipated, according to a June 25 note.

``The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought,'' Goldman said. ``We see multiple headwinds for Citigroup,'' such as risks of further writedowns, higher consumer provisions, and the potential need for additional capital raisings, dividend cuts or asset sales, Goldman said.

Goldman joined UBS AG and Merrill Lynch & Co. in predicting more writedowns for New York-based Citigroup, already reeling from $42.9 billion of credit-related losses. Citigroup Chief Executive Officer Vikram Pandit has announced 13,000 job cuts this year, and the bank this month forecast ``substantial'' additional writedowns and more losses on consumer loans.

Citigroup may write down $7.1 billion of collateralized debt obligations and associated hedges, and $1.2 billion for other asset classes, Goldman said. It may need to post a $600 million loss to reflect the mark-to-market value of its own structured note liabilities, New York-based Goldman said.

Payouts in Doubt

Goldman cut its six-month price target for Citigroup to $16 and put the New York-based investment bank on its ``conviction sell'' list. Citigroup closed at $18.85 in New York trading yesterday, having dropped 36 percent this year.

Citigroup probably won't be able to keep its current 7 percent dividend yield and may need to raise more capital, according to the report. Goldman estimated Citigroup could generate $3.5 billion in capital a year by cutting payouts in half.

``Given the firm's current level of earnings power, we do not believe the dividend is safe,'' it said. ``We believe any additional capital raises will be in the form of common equity, dividend cuts and or additional asset sales.''

Citigroup is more exposed to hedges on its leveraged loan and commercial mortgage-backed securities portfolios than Merrill and JPMorgan Chase & Co., indicating higher potential losses, Goldman said.

Merrill analyst Guy Moszkowski this week said Citigroup may post another $8 billion of writedowns this year. UBS analyst Glenn Schorr on June 20 said Citigroup probably will post a second-quarter loss of 40 cents a share after $8.7 billion of asset writedowns.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net