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Whitney v. Citigroup, Round II

Written By Brian Hicks

Posted March 26, 2008

Months after issuing a dire forecast for Citigroup, the stock now trades about $28 lower, with a forecast of even more doom and gloom from Whitney.  But what’s most impressive about Whitney wasn’t her call, but her willingness to go against the grain of bullish Citigroup shareholders. 

It was Halloween 2007 when she suggested that Citigroup was a growing train wreck since the ratio of tangible assets fell to 2.8%, the lowest in decades.  She even said Citigroup may have to cut its dividend, raise cash, or sell assets to raise more than $30 billion to raise capital.

Ten weeks later, her thesis was validated.  She absolutely nailed it.

But even at $22 a share, Whitney sees further downside, cutting her estimates on write-off concerns with collateralized debt obligations and mortgage-related debt.  The analyst now expects for Citigroup to post a 2008 loss after a Q1 write down of $13 billion, which is actually better than a Merrill Lynch forecast of $18 billion in write downs. 

Worse, according to the analyst, “despite cutting estimates for financials over 30 times since November, we are confident that this will not be our last reduction in 2008.  We anticipate further downside to both estimates and stock prices.”


Here’s more from

“March 26 (Bloomberg) — Citigroup Inc., the biggest U.S. bank by assets, will post a quarterly loss four times as large as Oppenheimer & Co. analyst Meredith Whitney previously estimated, she said in a revised forecast.

Citigroup fell 5.5 percent in New York trading to $22.17 at 11:15 a.m. after Whitney predicted the bank will lose $1.15 a share in the first quarter. That compares with her earlier loss estimate of 28 cents, Whitney wrote in an investor note yesterday.

Whitney correctly predicted two months in advance that Citigroup Inc. would reduce its dividend to preserve capital. Citigroup may write down $13.1 billion of assets including leveraged loans and collateralized debt obligations in the first quarter, according to her latest estimate. U.S. bank earnings overall will tumble 84 percent in the quarter, she said.

“This will not be our last reduction in 2008,” Whitney wrote in the note. “We anticipate further downside to both estimates and stock prices” because banks will be under pressure to mark down assets to reflect falling market indexes.

Citigroup may write down $9 billion on CDOs and $2.15 billion on leverage loans in the first quarter, Whitney said. She cut her full-year estimate for Citigroup to a loss of 15 cents a share, down from her previous forecast of a 75 cent profit.

Biggest Loss

New York-based Citigroup posted the biggest loss in its 196- year history in the fourth quarter of 2007 after rising defaults on home loans forced the company to write down $18 billion of subprime mortgage investments. The bank cut its dividend for the first time after reporting a loss of $9.83 billion, or $1.99 a share.

Charles “Chuck” Prince stepped down as chief executive officer and was replaced by Vikram Pandit, who promised a thorough review of the bank’s operations. Pandit eliminated 4,200 jobs, or about 1.1 percent of the workforce, at the end of the year and plans more cuts as he completes his cost review in April.

Citigroup is also selling $14.5 billion of preferred stock to investors including the government of Singapore to raise capital.

Pandit, 51, plans to tell shareholders in the next seven weeks how he intends to rebuild Citigroup after it lost more than $150 billion of market capitalization since the start of 2007.

Citigroup shares have declined 24 percent this year, valuing the bank at $116 billion.”