Citigroup ( C) CEO Vikram Pandit is facing continued calls from analysts to slash the bank's dividend.

On Friday, Keefe, Bruyette & Woods said it expects that fourth-quarter writedowns on mortgage securities could be as much as $15 billion to $16 billion for the nation's largest bank. That estimate is about $5 billion greater than the $11 billion Citi said it anticipated more than a month ago in the wake of the ouster of then-CEO Charles Prince.

The additional writedowns and expectations that 2008 could be an uphill climb for the hobbled financial sector if the U.S. economy slips into a recession, is providing even more support for a dividend cut writes Keefe, Bruyette analyst Diane Merdian in Boston.

News You Need: January 4, 2007

"We believe it is possible Mr. Pandit and Citi's board will come to conclude that the additional flexibility from a lower dividend is worth the potential short-term pain," the analyst reports. She estimates the likelihood of such a dividend cut is greater than 50% at this point.

Citi's shares fell as much as 3% before recovering slightly in the afternoon. The stock was down by about 58 cents to $28.35, a 52-week low for the financial institution. Other financials also slumped in Friday trading.

CIBC World Markets analyst Meredith Whitney has for months said that Citi faced a $30 billion capital shortfall that would require it to either sell assets or break itself up. Pandit, supporting the views of its board of directors, has said during interviews that Citi likely would not need to cut its dividend.

But Citi was equally adamant in denying its need to take on its balance sheet troubled arm's length entities known as structured investment vehicles, until it did just that in mid-December.

Citi's strong support for its dividend may ultimately be to the detriment of its shareholders if its financial outlook continues to come under pressure. Nearly halving Citi's current quarterly dividend of 54 cents could provide cash-strapped Citi with as much as $5 billion in annual net capital, Merdian writes. Citi has already obtained some $7.5 billion in cash from the Abu Dhabi Investment Authority but needs more according to, CIBC's Whitney.

Moreover, in today's topsy-turvy market there's little shame in taking your medicine.

A bevy of banks so far have been forced to cut their dividends and more may be faced with the same dilemma.

Earlier in the week, regional bank National City ( NCC) cut its dividend in half to 21 cents and announced job cuts in anticipation of challenging times in the mortgage market. UBS ( UBS) also recently replaced its 2007 cash dividend with a stock dividend. The firm also said it would sell a $9.75 billion stake to a Singapore fund, borrow about $11.5 billion from outside investors and sell treasury shares to shore up its balance sheet.

Citi's woes center primarily on arcane mortgage-related securities, including collateralized debt obligations and asset-backed securities that it originated over the past 18 months. Values of such securities, which were originated en masse during the housing boom by Citi and its peers, including Merrill Lynch ( MER), Morgan Stanley ( MS), Bear Stearns ( BS), Lehman Brothers ( LEH) and Goldman Sachs ( GS), have fallen precipitously as the housing market deflates and recessionary fears refuse to subside.

Merdian predicts that Citi will lose $1.16 per share in the fourth quarter and report full-year earnings of $1.52. She also cut Citigroup's price target $1 to $37.

Merdian joints a chorus of bank analysts predicting greater fourth-quarter writedowns at big banks. In late December, Goldman analyst William Tanona estimated that writedowns for Citi could be nearly $19 billion. The Goldman analyst also estimates that fourth-quarter writedowns at Merrill could hit $11.5 billion -- approximately $5 billion more than he initially anticipated.

Tanona also doubled JPMorgan Chase's ( JPM) writedown estimates to $3.4 billion.

For Citi, the prospect of more writedowns and a dividend cut is just a part of the myriad problems facing Pandit and new Chairman Sir Win Bischoff. The duo also must consider whether to scale back the behemoth bank to better operate efficiently -- a move that could include job cuts and the sale of business lines.

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