June 24, 2008 / 3:00 PM / 11 years ago

UPDATE 2-Citigroup faces Q2 loss, JPMorgan shr view cut-Merrill

(Adds details)

By Tenzin Pema

BANGALORE, June 24 (Reuters) - Citigroup Inc (C.N) will likely post a second-quarter loss and suffer a possible $8 billion of fresh write-downs, while credit concerns will also weigh on JPMorgan Chase & Co’s (JPM.N) quarterly results, according to Merrill Lynch & Co analyst Guy Moszkowski.

The analyst said recent comments from Citigroup management as well as falling home prices and rising subprime mortgage defaults suggest that “another round (of write-downs) is forthcoming.”

Last week, Citigroup Chief Financial Officer Gary Crittenden said on a Deutsche Bank conference call that the bank could take substantial write-downs in the second quarter, raising concern that second-quarter earnings would be weaker than expected. Moszkowski also said write-downs will weigh on JPMorgan, and that the bank’s shotgun acquisition of Bear Stearns Cos will likely result in increased markdowns.

The analyst also lowered his 2008 and 2009 earnings estimates for JPMorgan, and forecast a 2008 loss for Citigroup, saying he expects additional writedowns at both companies.

Financial institutions globally have written down more than $400 billion in assets amid the credit crunch.

Moszkowski expects Citigroup to post a second-quarter loss of 50 cents a share, after earlier expecting profit of 39 cents a share. He also projected a full-year loss of 42 cents a share, after earlier expecting profit of 44 cents a share.

The analyst expects Citigroup in the second quarter to incur $5.1 billion of writedowns on collateralized debt obligations and subprime exposure; to boost reserves related to monoline insurers by $2.4 billion, and to write-down exposure to “Alt-A” mortgages by $423 million.

Citigroup has suffered more than $46 billion of write-downs and credit losses in the last three quarters. Though Moszkowski said the bank has substantial long-term value in its consumer and capital markets businesses, he said its “legacy of lax oversight .... will require years of remedial management.”


The analyst said consumer credit is becoming increasingly stressed, and that this poses a risk to JPMorgan, one of the largest U.S. consumer lenders, with heavy exposures to such areas as credit card and home equity lending.

“In a consumer recession, JPMorgan is hard-pressed to avoid the pain entirely,” Moszkowski added.

The analyst said there was also a “high risk” that JPMorgan could make a very large regional-bank acquisition. He expects such a deal to be seen as “opportunistically positive,” as JPMorgan’s management was likely do only a well-priced deal and execute it effectively.

Moszkowski lowered his second-quarter profit per share estimate for JPMorgan to 61 cents from 86 cents. He cut his 2008 outlook to $2.79 a share from $3.30, and for 2009 to $3.88 a share from $4.37.

Among 17 analysts covering Citigroup, Moszkowski ranks second in accuracy of earnings estimates over the last four fiscal quarters and the last two fiscal years, according to Thomson Reuters data. He ranks tenth among 17 analysts covering JPMorgan.

Moszkowski cut his price target on Citigroup stock to $20 from $23 and on JPMorgan stock to $42 from $46. He rates both stocks “neutral.”

Shares of both Citigroup and JPMorgan were up more than 2 percent at $18.95 and $37.62, respectively, in afternoon trade on the New York Stock Exchange. (Editing by Jarshad Kakkrakandy)

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