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Merrill, Citi Cut by Oppenheimer's Whitney

Dan Freed

Oppenheimer & Co. analyst Meredith Whitney lowered her estimates on Merrill Lynch(MER Quote - Cramer on MER - Stock Picks) and Citigroup(C Quote - Cramer on C - Stock Picks) Wednesday, due in part to their exposures to troubled bond insurance companies.

Whitney, who made an early call that Citi would have to cut its dividend last year, lowered her second-quarter estimate to a loss of $1.25 per share from a gain of 21 cents per share and predicted a writedown of $12.2 billion. For Merrill, she sees a loss of $4.21, worse than the 20-cent profit she predicted earlier. She sees a writedown of $5.8 billion for the firm.

The analyst cited ratings downgrades to the bond insurers Ambac(ABK Quote - Cramer on ABK - Stock Picks) and MBIA(MBI Quote - Cramer on MBI - Stock Picks) in both cases, but noted another large factor for Citigroup will be a decline in indices that track the prices of asset-backed securities.

UBS analyst Glenn Schorr also reduced his estimates on Merrill, citing several reasons, though the largest by far was also downgrades to the bond insurers.

Merrill and Citi have endured a string of negative analyst notes ahead of their expected second-quarter reports June 17 and 18. Goldman Sachs and Sanford Bernstein last week also lowered their estimates for the banks, while Lehman Brothers cut its outlook for both a few days later.

In midday trading Wednesday, Merrill shares were falling 2.1% to $31.57, while Citi was down just a penny to $17.12.