Citigroup faces $8.9bn writeoff - Goldman

Citigroup may suffer $8

Citigroup may suffer $8.9 billion of second-quarter write-downs, forcing it perhaps to cut its dividend again, while Merrill Lynch & Co may incur $4.2 billion of write-downs, Goldman Sachs & Co analyst William Tanona wrote today.

The analyst also added Citigroup to Goldman's "Americas conviction sell" list. He said the largest US bank's 32 cents-per-share quarterly dividend is "not safe," and that the bank may have to issue common stock or sell assets to raise capital because regulators may forbid it from issuing more preferred or convertible securities.

"We see multiple headwinds for Citigroup including additional write-downs, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales," the analyst said.

Citigroup did not immediately return a call seeking comment.

Mr Tanona also downgraded the US brokerage sector to "neutral" from "attractive," saying deteriorating fundamentals will likely prolong any recovery from the year-long credit market tightening.

European financials fell in early trade today following the report. The FTSEurofirst 300 index of top European shares was down more than 1 per cent at 1,211.51 points by 11.02am, while the DJ Stoxx European Bank Index was down 3 per cent at 294.45 points.

Citigroup shares, meanwhile, fell 61 cents to $18.24 in pre-market trading. If they fall below $18.00, they would touch their lowest level since October 1998, the month Citicorp and Travelers Group merged to form Citigroup, Reuters data show.

Merrill shares fell 83 cents to $34.63 in pre-market trading.

Though Citigroup in January cut its quarterly dividend 41 per cent, Tanona said another cut may be warranted by the bank's lack of current earnings power. He said halving the current dividend could preserve $3.5 billion of capital annually.

"Given the firm's current level of earnings power, we do not believe the dividend is safe."

On June 17th, Goldman analysts led by Richard Ramsden said US banks may need to raise $65 billion of additional capital to cope with mounting losses from a global credit crisis that will not peak until 2009.

As of May, Citigroup had raised $42 billion, including capital injections from sovereign wealth fund Government of Singapore Investment Corp, data compiled by Reuters News show.

Reuters