Merrill Slashes Citi's First-Quarter Views
Merrill now looking for a first-quarter loss for Citi.
March 4, 2008
Merrill Lynch has taken a knife to Citigroup’s first-quarter estimates, citing ongoing deterioration in the US residential and commercial mortgage markets, corporate debt markets and key investment banking categories.
“We are forecasting another very large write-down of Citi’s subprime-related exposures,” said Merrill analyst Guy Moszkowski in a research note. He cut his first-quarter Citi view to a loss of $1.66 a share from his previous estimate of net income of 55 cents, and his full-year outlook dropped to net income of 24 cents from $2.74.
The $2.21 reversal in the quarter is based on Moszkowski’s call for a $15 billion negative mark on Citi’s $37 billion subprime and CDO exposure, a $3 billion negative mark in commercial real estate finance and leveraged lending, and big increases in forecast consumer lending provisions in real-estate-lending products.
“While the company took very large marks in the fourth quarter … marks taken elsewhere analyzed category by category would imply the company still has quite a long way to go to mark these positions adequately,” Moszkowski said. “Continued vicious home-price action and delinquency default stats on subprime mortgages support this view.”
He also points out that Citi raised about $17 billion above and beyond capital extinguished in 2007, “which we believe signals the potential for a material further write-down.” The analyst initially had targeted a $3 billion subprime hit in the quarter, which he now says could come closer to $15 billion.
The per-share quarterly estimate cut breaks down like this: subprime ($1.67); other markets and banking (43 cents); consumer lending (5 cents); North America retail (3 cents); and alternatives (3 cents).
Moszkowski is maintaining his "neutral" rating on the stock, noting that the shares trade at about 1.0 times pro forma book per share, but he says “catalysts still seem quite negative.”
Shares of Citi were recently down 4% at $22.20. The company will post its first-quarter results on April 18.
For more information on related topics, visit the following:
