Signup for our free newsletter:

Fannie, Freddie, and WaMu Cut to Sell by Goldman

Written By Brian Hicks

Posted February 25, 2008




The bullish ranting of CNBC aside, you may be wondering whether or not it is it time to buy the big names in the banking sector.

Well, according to the analysts that cover them, the answer to that question would seem to be a resounding “NO”.

That’s the take today as few of the giants–Freddie Mac, Fannie Mae, and Washington Mutual— were cut to “sell” by Goldman Sachs.

Moreover, analysts at Oppenheimer & CO. also took the axe to Citigroup’s 2008 earning estimates today, chopping a full 70% off of earlier forecasts.

Of course, it was just last Thursday that Oppenheimer analyst Meredith Whitney told CNBC that Citi may need to cut its dividend once again due to insufficient reserves.

Whitney, you may remember, nailed it last year with her first prediction of a reduction in the Citi dividend that rocked the Street late last summer.

Nonetheless, here’s the rest of the story in the shaky world of the financials, where the Financial Select Sector SPDR (XLF) has fallen by 2% today.

From MarketWatch by Greg Morcroft entitled: Citigroup Lower as Oppenheimer Slashes Estimate.

“Oppenheimer & Co. analysts on Monday slashed Citigroup Inc’s. 2008 earnings estimate by 70%, to 75 cents a share from $2.70 previously, and said the financial-services giant may have to sell $100 billion of assets to put its balance sheet right.

Meanwhile, analysts at Goldman Sachs were also busy. They lowered expectations for several firms, downgrading Fannie Mae and Freddie Mac to sell and trimming estimates for several top brokerages scheduled to report financial results next month.

Analyst Meredith Whitney at Oppenheimer said the price of Citigroup’s shares could fall below $16 as they retreat to valuations from the last difficult credit cycle of 1990-1991.

“The three largest problems for Citigroup are further writedowns to their carrying values of CDOs related to subprime mortgages, further write-downs from leverage lending commitments, and further write-downs associated with on-balance-sheet consumer loans,” Whitney wrote in her report.

On Thursday, Whitney told CNBC that Citigroup may not have put aside sufficient reserves and thus may cut its dividend again soon. She correctly predicted in November that the company would be forced to scale back payouts: The Citigroup board approved a reduction of 41% in its dividend in January.

Citigroup’s shares, part of the Dow Jones Industrial average, fell 1.4%.

As for mortgage giants Fannie Mae Fannie Mae, Goldman analysts cut their ratings to sell from neutral and trimmed earnings estimates by 33% and 19% respectively.

Goldman also downgraded Washington Mutual to sell from neutral, saying the nation’s largest thrift faces growing credit risks from residential and commercial real-estate loans.

In addition, Goldman revised lower earnings-per-share estimates for Lehman Bros., Morgan Stanley, Bear Stearns Cos., Merrill Lynch, Citigroup and fellow blue chip J.P. Morgan Chase.

“Mortgage-related assets continued to deteriorate in value, prompting our call for another round of write-downs,” Goldman said in a research note.

“We forecast first quarter write-downs of approximately $1-$12 billion for each of our large-cap companies across all of these categories,” Goldman told clients.”

Meanwhile, the housing market that is responsible for all those downgrades continues to wallow in the mire.

According to the National Association of Realtors today, sales of single-family homes and condos fell by 0.4% last month, to an annual rate of 4.89 million units.

That’s was the slowest pace on record going back to 1999, as the full weight of the credit crunch helped to drain the mortgage markets of all of that “easy money.”

Median sales prices slid too, falling 4.6% from a year ago after registering their fifth straight monthly decline. Inventory meanwhile, reached a massive 10.3 month supply.

Definitely not good.

By the Way: Freddie Mac is scheduled to release its earnings on Thursday, which could have market rattling consequences. The last time Freddie announced its earnings, the Dow dropped 200 pts. and Freddie lost 29% of its market cap.

Depending on the news, Thursday market action could be interesting.

By the Way Part Two: I just clicked over to yahoo finance and was hit with the follow headline for their lead story: Stocks Higher on Hope for Housing Bottom. It kind of gave me a good chuckle.