Citigroup Inc., the bank with the largest reported losses due to the mortgage market collapse, is expected to take an additional $8.9 billion in net writedowns for the second quarter. Citigroup is already staggering from the $42.9 billion defeat in credit related losses.
Goldman Sachs Group Inc. has lowered its ratings for
Goldman sees more struggles in the near future for Citigroup. Cathy Chan reported in a recent Bloomberg article that Goldman expects the bank to face risk of further writedowns, higher consumer provisions and the potential need for additional capital raisings, dividend cuts or asset sales. Goldman is not alone in these forecasts for Citigroup. UBS AG and Merrill Lynch & Co. also predicted more writedowns. Merrill Lynch analyst Guy Moszkowski believes the bank will report another $8 billion of writedowns this year.
Citibank CEO Vikram Pandit announced an additional 13,000 job cuts this year. He also expects “substantial” additional writedowns and more losses on consumer loans. Goldman believes Citigroup may writedown $7.1 billion of collaterized debt obligations and associated hedges, as well as $1.2 billion for other asset classes. They also said the bank may need to post a $600 million loss to reflect the market-to-market value of its own structured note liabilities.
It is unlikely that Citigroup will be able to keep its current 7% dividend yield, and they need to make more capital. It’s estimated they could generate $3.5 million in capital a year by cutting payouts in half.