Goldman Sachs has downgraded Citigroup, the nation’s largest bank, estimating that it will have to take a $15 billion hit due to its exposure to the subprime meltdown. Two weeks ago, Citigroup estimated that its mortgage related write-downs would total from $8-$11 billion as its CEO, Charles Prince “resigned.”
Goldman analyst William Tanona wasn’t thrilled with Citigroup’s decision to pink-slip its CEO:
“The lack of leadership at this point in Citi’s storied history could not have come at a worse time,” Goldman analyst William Tanona wrote in a note to clients. “With deteriorating consumer and housing metrics, Citigroup is facing mounting pressure across many businesses.”
Citigroup’s stock is down 39% on the year, and Tanona fears that the subprime debacle may be spreading to the consumer credit markets:
Goldman estimated Citigroup will have to book $15 billion in write-downs over the next two quarters related to its $43 billion in exposure to complex securities called collateralized debt obligations. Citigroup already has said it expects to see a loss of $8 billion to $11 billion on those positions. Goldman expects the bank to take the full $11 billion hit and then another write-down of $4 billion in the first quarter, an estimate based on weakness in indices that serve as proxies for the value of mortgage-related securities.
The situation isn’t very sunny outside of the investment-banking unit, either. Citigroup will feel “the pain” of a worsening consumer-credit environment in its retail banking and cards divisions, the Goldman note said.
Gosh. It sounds like Citi needs a hug.
Goldman Says Citigroup Faces $15 Billion CDO Write-downs [WSJ]