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Sub-prime write-down report bleak

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From Times Wire Services

Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. may write down an additional $34 billion in bonds linked to the collapse of the sub-prime mortgage market, analysts at rival Goldman Sachs Group Inc. say in a new report.

Citigroup, the biggest U.S. bank, may reduce the value of its holdings by $18.7 billion in the fourth quarter and cut its dividend by 40% to preserve capital, Goldman analyst William Tanona said in the report sent to clients Wednesday.

JPMorgan Chase, the third-largest U.S. bank, may write off $3.4 billion, double Goldman’s previous estimate. Merrill Lynch may reduce its holdings by $11.5 billion, Tanona wrote.

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The new estimates helped trigger another sell-off in financial issues Thursday. Citigroup fell 89 cents, or 2.9%, to $29.56, its lowest closing price since 2002.

JPMorgan Chase slid $1.30, or 2.9%, to $43.64. Merrill Lynch dropped $1.34, or 2.5%, to $53.20.

Estimated write-downs related to the sub-prime debacle have been a moving target on Wall Street in recent months because of uncertainty about how certain mortgage securities should be valued. But in general, the outlook for the housing market hasn’t been improving, which has deepened fears about mortgage-related losses to come.

When Citigroup said Nov. 4 that its fourth-quarter write-down could be $8 billion to $11 billion, it acknowledged that the value could end up being larger. The company said at the time that it would not revise its estimate until the quarter was over.

“It will be a couple of quarters before the current credit crisis is fully digested by the markets,” wrote Tanona, who has a “sell” rating on Citigroup’s stock and a “neutral” rating on JPMorgan and Merrill. “Given the magnitude of the write-downs we assume and Citi’s remaining exposure, we believe the firm has a serious need to preserve or raise additional capital.”

That could lead to a cut in the bank’s dividend payments to shareholders, Tanona said. Citigroup’s current annual dividend is $2.16 a share, which means a 7.3% yield at Thursday’s closing stock price.

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