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Dec 1 (Reuters) - Veteran banking analyst Richard Bove widened his estimate of Citigroup Inc's (C.N) 2008 loss, citing higher-than-earlier expected loan losses because of rising unemployment, more aggressive write-offs and preferred dividend payments associated with new capital infusions.
"It is now believed that unemployment will reach 10 percent in 2009 pushing loan losses much higher than previously expected" the Ladenburg Thalmann analyst said in a note dated Nov. 30.
The bank may also write off troubled assets more aggressively after the U.S. government stepped in, he wrote.
On Nov. 23, the U.S. government announced an investment of $20 billion in Citigroup and a plan to shoulder most of its potential losses on $306 billion of toxic assets, after the bank's shares sank more than 60 percent in the previous week on concern about its ability to survive.
As part of the rescue plan, the government will receive preferred shares with an 8 percent dividend and warrants to buy $2.7 billion of common stock, comprising about 254 million shares at $10.61 each.
Bove expects preferred dividend payments related to the new capital infusions by the U.S. government to cost $4.7 billion, or 20 cents a share, per quarter.
He widened his 2008 loss view to $2.79 a share from $2.44 a share. Bove also changed his 2009 earnings view to a loss of 5 cents a share, compared with his prior view of profit of 79 cents a share.
However, he maintained his "buy" rating on the stock and said that Citigroup has some serious problems but it can handle them as its cash flows are positive.
"The stock is oversold," he said.
Shares of Citigroup closed at $8.29 Friday on the New York Stock Exchange. The shares have lost about three-fourths of their value in the past year. (Reporting by Amiteshwar Singh in Bangalore; Editing by Mike Miller)