Goldman Sachs said it sees significant losses for Citigroup and Merrill Lynch in the first quarter as it expects sizable write-downs for both investment banks amid deteriorating credit and equity markets.
"If our forecasts are correct, it is likely that these firms may need to raise additional capital in coming months via equity offerings, asset sales and/or dividend cuts," analyst William Tanona wrote in a note to clients.
For the third consecutive quarter, the analyst is expecting write-downs on asset backed securities (ABS) and collateralized debt obligations (CDOs) to be the "driving force" behind quarterly losses for both Citigroup and Merrill.
For the first quarter, Tanona sees about $12 billion of ABS CDO related write-downs for Citigroup, and expects Merrill to take an additional $2.5 billion credit value adjustment on its credit default swaps (CDS) on CDOs.
For Merrill, the analyst sees a loss of $2.45 a share for the quarter, compared with his prior view of earnings of 25 cents.
He sees a loss of $1.55 a share for Citigroup , wider than his prior estimate of a loss of $1.00.
For 2008, he sees earnings of 50 cents a share for Citigroup, down from the $1.35 he had forecast earlier.
For Merrill , he sees earnings of 70 cents a share, down from his prior view of $3.85.
Tanona, however, maintained his earnings estimates on J.P. Morgan Chase saying he does not see any additional write-downs for the company in the first quarter.