March 28, 2008 / 1:14 PM / in 11 years

RPT-UPDATE 1-Oppenheimer sees dividend cuts at Citi, Wachovia

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March 28 (Reuters) - Citigroup Inc (C.N), Wachovia Corp WB.N, along with other U.S. banks are likely to announce dividend cuts in April, as banks’ earnings will not support current dividend payouts in 2008, Oppenheimer & Co analyst Meredith Whitney said.

“We continue to believe the bad news is not priced into the bank stock prices, and that progressively throughout this year, all financials, but particularly banks, will trade ... at least 25 percent lower from current levels,” Whitney said.

Management at banks are only now beginning to come to terms with the severity of both the liquidity environment as well as the credit environment, the analyst said.

“For that reason, we believe that beginning with the (first quarter of 2008) ... banks will seriously address their ability to maintain their current dividend levels,” she added.

In October of last year, Whitney correctly predicted that Citigroup, the largest U.S. bank by assets, would cut its dividend and raise $30 billion of capital. Whitney’s downgrade on Oct. 31 of Citi roiled stocks on Nov. 1, sending the bank’s shares down nearly 7 percent.

“The current yield of 5.9 percent for the banks under our coverage is the second highest of any year since 1990 ... Banks under our coverage are dangerously approaching earnings levels that simply will not support such high relative payouts,” Whitney wrote in a note to clients.

She estimated that Citi will pay out $1.43 per share more than it earns this year. In a report late Tuesday, Whitney said she expects the bank to post a loss of 15 cents a share in 2008.

“How anyone, let alone Citi’s management and the board, can believe that its dividend is safe given this earnings scenario is beyond our comprehension,” Whitney noted.

Earlier this week, Whitney slashed her earnings outlooks for the four largest U.S. banks — Citigroup, Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Wachovia —, saying there is “no clear end in sight” to downward pressure on the sector’s profits.

Shares of Wachovia were down nearly 1 percent at $26.90 Friday in trading before the bell, after closing at $27.07 Thursday on the New York Stock Exchange.

Citi shares closed at $21.79 Thursday on the New York Stock Exchange. (Reporting by Tenzin Pema in Bangalore; Editing by Bernard Orr)

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