Citigroup May Not Report Profit Until Late 2009

Citigroup May Not Report Profit Until Late 2009 (Update3)

By Jeff Kearns and Josh Fineman


Oct. 21 (Bloomberg) -- Citigroup Inc., the second-largest U.S. bank, may not report a profit until the second half of 2009 because of worsening credit conditions, said Goldman Sachs Group Inc., which told investors to sell shares.

``It will be difficult for Citi to generate profitability over the next 12 months as additional writedowns, lower levels of capital markets activity, and further deterioration in credit- quality trends will continue to weigh on the firm's operating results and capital ratios,'' analyst William Tanona wrote.

Citigroup reported a fourth consecutive quarterly loss last week after at least $13.2 billion of credit losses and writedowns amid the worst housing slump since the Great Depression. Treasury Secretary Henry Paulson has offered to inject $125 billion into banks, including $25 billion into Citigroup, by purchasing preferred shares, part of a $700 billion industry bailout.

Citigroup slipped 6 percent to $14.18 at 4 p.m. in New York Stock Exchange composite trading. The shares have lost 52 percent this year.

Tanona added Citigroup to Goldman's ``Americas Conviction Sell List.'' He also has a six-month price target of $11.

``Weak economic data will keep the stock under pressure over the next six months and it is tough to see why the stock would head higher over this period,'' Tanona wrote.

Citigroup reported a fourth consecutive quarterly loss last week after at least $13.2 billion of credit losses and writedowns. The third-quarter net loss was $2.8 billion, or 60 cents a share, compared with earnings of $2.2 billion, or 44 cents, a year earlier, New York-based Citigroup said.

`Risky Assets'

``Citigroup continues to have some of the highest levels of exposure to risky assets as well as some of the least aggressive marks on those assets to date,'' Tanona said. ``Citigroup will face continued pressure on profitability as credit quality deterioration is likely to accelerate over the near term.''

Banks and securities firms have reported more than $660 billion in losses, writedowns and credit provisions since the start of 2007 and raised $630 billion in capital to offset those losses, according to data compiled by Bloomberg.

Tanona recommended investors buy Morgan Stanley rather than Citigroup. He expects Morgan Stanley shares to ``significantly'' outperform Citigroup over the next six to 12 months.

``Morgan Stanley has very limited exposure to consumer credit, which is an area we believe will provide significant headwinds for Citigroup in 2009,'' Tanona wrote.

Morgan Stanley climbed 43 cents, or 2.2 percent, to $20.20 in New York Stock Exchange composite trading. The shares have dropped 62 percent this year.

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net. Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: October 21, 2008 16:16 EDT