October 22, 2008 / 11:56 AM / 10 years ago

UPDATE 2-Citigroup sees rising losses: analyst Whitney

(Adds analyst comments, updates share price)

Oct 22 (Reuters) - Citigroup Inc (C.N) sees rising losses as the credit situation facing the consumer continues to deteriorate, said prominent banking analyst Meredith Whitney, after meeting with the bank’s chief financial officer on Tuesday.

Shares of Citigroup fell as much as 5 percent to $13.44 in early morning trade on Wednesday, as the Oppenheimer & Co analyst became the latest among prominent Wall Street analysts to turn negative on the bank’s outlook.

Analyst Whitney said she continues to believe that outsized expenses and negative operating leverage represent the largest challenge for Citigroup.

“We have and continue to believe consumer liquidity will continue to be squeezed, we are no more encouraged after today’s meeting,” Whitney, who met with Citigroup CFO Gary Crittenden, wrote in a Oct 21 note to clients.

She expects the bank to post a loss of $2.87 a share in fiscal 2008, and a loss of $2.65 a share in fiscal 2009.

According to Reuters Estimates, analysts on average expect Citigroup to incur a loss of $2.24 a share in 2008.

Citigroup, the nation’s largest bank by assets until the third quarter, had last week posted its fourth straight quarterly loss and $13 billion in write-downs and credit losses.

The bank is in a difficult spot as it is experiencing rising losses from traditional lending operations, such as U.S. credit cards, even as losses continue from repackaged mortgage debt and other securities on its balance sheet.

On Tuesday, Goldman Sachs analyst William Tanona said Citigroup was unlikely to turn profitable over the next 12 months mainly because of additional write-downs and a deteriorating credit market.

Tanona’s comments came shortly after Merrill Lynch analyst Guy Moszkowski’s statement last week that Citigroup’s negative credit outlook was enhanced by tough investment banking environment.

Citigroup, however, remains focused on reducing legacy assets, right-sizing businesses and mitigating risk, Whitney said.

She also said Crittenden was “...optimistic that the steps taken by the Treasury and government will restart the term-funding market, particularly for larger corporations, and thus providing the real business economy a benefit.”

“It seems that increased capital flexibility will go towards the corporate loan market first in the first major step toward re-intermediating the capital markets,” Whitney added.

The analyst rates the stock “underperform.”

Shares of Citigroup were trading down 6 cents at $14.12 in morning trade on the New York Stock Exchange. (Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy)

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