Skip to main content

Downgrade Hammers Citi

A Goldman analyst said losses on asset-backed securities can hit $15 billion in the next six months.

Updated from 8:31 a.m. EST

Scoring a new CEO may be the least of Citigroup's near-term woes, according to a

Goldman Sachs

(GS) - Get Goldman Sachs Group Inc. (The) Report

analyst's report.

Citi, which saw the resignation of CEO Chuck Prince amid the announcement that it anticipated facing writedowns as high as $11 billion, was lowered to a sell rating by Goldman, which predicted that the firm's losses on so-called collateralized debt obligations, or CDOs, could hit as much as $15 billion over the next six months.

The news has continued to drag down the big bank's shares, which have been hammered over the course of the past several weeks, following the uncertainty created by the departure of Prince and the financial institution's loss assessment.

In addition, Goldman analyst William Tanona cut estimates for other financials that have been mired in structuring securities, including

Bear Stearns



Merrill Lynch



Morgan Stanley

(MS) - Get Morgan Stanley Report

Scroll to Continue

TheStreet Recommends


Lehman Brothers



JPMorgan Chase

(JPM) - Get JP Morgan Chase & Co. Report



(ETFC) - Get E*TRADE Financial Corporation Report

, which have all in varying degrees been involved in structuring securities consisting of loans provided to borrowers with questionable credit ratings.

"Citigroup will likely face an increasingly challenging operating environment which is likely to pressure results in many of their businesses," Tanona writes, noting that dislocation in the credit markets that began in the spring and summer continues to shake investor confidence.

Citi shares were down about 5% to about $32.29.

With the exception of Goldman, which so far has managed to avoid taking embarrassing writedowns, other financial shares were tumbling.

Goldman shares were down fractionally in trading, while Merrill, Lehman and Bear Stearns were down between about 2% and 5%.

Meanwhile, the search for a Citi CEO successor

got tougher when

NYSE Euronext


chief John Thain agreed to take over the top spot at Merrill. Thain will replace Stan O'Neal, who left after saying the bank would see $8.4 billion in writedowns on leverage loans and asset-backed securities.

Other potential candidates for Citi's top job include Vikram Pandit, head of the bank's newly formed institutional clients group, and former Citi Vice Chairman and Chief Operating Officer Robert Willumstad.

The Goldman downgrade follows, Citi's

appointment on Friday of new Chief Risk Officer Jorge A. Bermudez. Bermudez, who will have a lot on his plate, in overseeing market, credit and operational risk and compliance, replaces the retiring Dave Bushnell at the end of the year.