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Citi, Merrill, JPMorgan Face More Writeoffs: Goldman

Citigroup may need to slash its dividend 40 percent to preserve capital, and with Merrill Lynch and JPMorgan Chase may write off $33.6 billion of debt this quarter as the global credit crunch deepens, a Goldman Sachs analyst said.

A foreclosed home for sale.
David J. Phillip
A foreclosed home for sale.

"It will be a couple of quarters before the current credit crisis is fully digested by the markets," the analyst, William Tanona, wrote in a report released Thursday. "Fourth-quarter trading results are likely to be among the weakest we have seen in some time."

Tanona nearly doubled his forecast for write-downs after mortgage losses led investors to shun debt they once thought safe but now deem risky.

He now expects Citigroup, Merrill and JPMorgan to write off a respective $18.7 billion, $11.5 billion and $3.4 billion for collateralized debt obligations this quarter, up from a respective $11 billion, $6 billion and $1.7 billion.

Tanona also said Citigroup may in 2008 cut its quarterly dividend of 54 cents a share, equal to a 7.1 percent yield, to help raise or preserve $5 billion to $10 billion of capital. He rates Citigroup "sell," and Merrill and JPMorgan "neutral."

Citigroup spokeswoman Shannon Bell and JPMorgan spokesman Joe Evangelisti declined to comment. Merrill did not return several requests for comment. Citigroup has projected an $8 billion to $11 billion fourth-quarter write-down.

In afternoon trading, Citigroup shares fell 92 cents, or 3 percent, to $29.53; Merrill fell $1.28, or 2.35 percent, to $53.26, and JPMorgan fell 89 cents, or 2 percent, to $44.05.

Through Wednesday, the shares were down 45 percent, 41 percent and 7 percent, respectively, this year.

Financial companies including Bank of America and Switzerland's UBS have already announced more than $70 billion of write-offs tied to the credit crisis.

Debt losses led to Citigroup replacing Chief Executive Charles Prince with Vikram Pandit, and Merrill replacing Chief Executive Stanley O'Neal with John Thain.

BILLIONS STILL AT RISK

Tanona said that after the projected write-downs, Citigroup would still be exposed to $24.5 billion of CDOs, Merrill $7.7 billion and JPMorgan $5 billion.

He said Merrill's write-down will be larger than previously expected because Thain will try to clean up problems now rather than let them fester in 2008.

The analyst boosted his forecast for fourth-quarter losses per share to $1.33 from 52 cents at Citigroup, and to $7.00 from $1.50 at Merrill. He cut his forecast for profit per share at JPMorgan to 65 cents from $1.04.

Analysts on average expect respective losses of 61 cents and $4.00 per share at Citigroup and Merrill, and a profit of $1.01 per share at JPMorgan in the fourth quarter, according to Reuters Estimates.

Brad Hintz, a Sanford C. Bernstein analyst, on Thursday predicted a $10 billion fourth-quarter write-down at Merrill, leading to a quarterly loss of $5.10 per share.

Last month, Citigroup shored up capital by selling a $7.5 billion stake to Abu Dhabi's government. Merrill, meanwhile, on Monday announced a $6.2 billion capital infusion from Singapore's government and money manager Davis Selected Advisers.

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