Goldman cuts rating on Citi to ‘sell’
“Sell” ratings from Wall Street analysts remain relative rarities, and that made Goldman, Sachs & Co.’s rating shift on Citigroup Inc. on Monday all the more shocking.
Citigroup shares dived $2, or 5.9%, to $32 after Goldman Sachs analyst William Tanona cut his rating to “sell,” predicting that the biggest U.S. bank could write down as much as $15 billion related to mortgage losses.
The stock is at its lowest level in more than four years and is down 43% year to date.
Tanona told clients that Citigroup’s profit might continue to fall as mortgage delinquencies rise and the bank misses opportunities as it searches for a leader. Charles O. Prince quit as chief executive Nov. 4 after the bank said it would take a write-down of as much as $11 billion on loans and securities.
Tanona predicted the $11 billion would balloon to $15 billion.
Goldman’s rating cut came after Deutsche Bank downgraded Citigroup to “sell” Oct. 12. CIBC Capital Markets and Morgan Stanley also have the equivalent of “sell” ratings on the stock.
Still, analyst views on New York-based Citigroup remain mixed. Eight of the 22 analysts tracked by Bloomberg recommend that their clients buy the shares, compared with five who recommend they sell and nine who have “hold” ratings.
“The lack of leadership at this point in Citi’s storied history could not have come at a worse time,” Tanona wrote in a report. “With deteriorating consumer and housing metrics, Citigroup is facing mounting pressure across many businesses.”
Banks like Citigroup don’t just hold sub-prime mortgages, which are home loans to customers with bad credit. They also have money tied up in complex fixed-income instruments known as collateralized debt obligations. CDOs combine slices of debt, and they often have mortgages underlying them.
And if the housing market keeps dragging on consumer spending, Citigroup’s credit card and retail banking businesses could weaken, Tanona said.
He lowered his 2008 and 2009 per-share profit estimates for Citigroup to $3.80 and $4.60, respectively, from $4.65 and $5.20.
The credit markets seized up in August on concerns about plunging home prices and missed mortgage payments. With the housing market continuing to sink, investors are bracing for more write-downs at financial institutions, which already have recorded tens of billions in write-downs this year.
A write-down is a calculation of the loss in value of a company’s portfolio, which can include actual mortgages, instruments such as CDOs or other assets with sub-prime mortgage exposure.
Goldman’s shift on Citigroup helped trigger another broad decline in financial shares. JPMorgan Chase & Co. slumped $1.72 to $41.37, mortgage finance titan Fannie Mae slid $3.11 to $37.58 and Countrywide Financial Corp. plunged $1.50 to $10.57.
Impac Mortgage Holdings fell 9 cents to 67 cents. The Irvine-based lender said it expected to “significantly” boost loan-loss provisions because of rising mortgage delinquencies.
