Analyst Ups Bank Writedown Estimates

A Goldman Sachs(GS Quote) analyst on Thursday joined a long line of his peers to predict that several large banks' fourth-quarter writedowns are likely to be even greater than investors expect.

William Tanona now estimates Citigroup's(C Quote) writedowns to come in at $18.7 billion in the quarter, up $7.7 billion from his original expectation. He expects Merrill Lynch(MER Quote) to write down $11.5 billion of collateralized debt obligations (CDOs) and subprime exposure, up $5.5 billion. Tanona doubled JPMorgan Chase's(JPM Quote) writedown estimates to $3.4 billion, according to an industry note in which he cut his earnings estimates on the three firms.

Following the writedowns, Citi would still be exposed to about $25 billion worth of CDOs, Tanona estimates. Merrill and JPMorgan Chase will still be exposed to $8 billion and $5 billion in CDOs, respectively, he writes.

The three big banks, which end their fourth quarters on Monday, are expected to report earnings results in mid-January.

"We believe fourth quarter 2007 writedowns are likely to be significantly larger than investors are anticipating," Tanona writes. "Financial firms' marks will come under intense scrutiny in the fourth quarter as investors have already seen some aggressive writedowns from other firms in recent weeks. As a result, many of the December year-end firms are likely to be more aggressive with their marks, in our view, particularly those with high levels of exposure such as Citi and Merrill Lynch, both of whom have new CEOs at their helms."