Tough Times Ahead for Citigroup

Citigroup (C) got a rough ride from investors Tuesday after the bank reported a fourth quarter loss of $1.99 that fell far short of Street expectations. The stock was down more than 3% in brisk trading Tuesday morning.

In a note to clients, Goldman Sachs analyst William Tanona said:

It was clearly a tough quarter for Citi. That said, the mortgage related write-downs, the dividend cut and the capital raise were all within our estimates established on December 26.

However, the firm still has sizable exposure to sub-prime mortgage ($8-billion direct and C$40-billion in CDOs on a gross basis), which could result in additional write-downs in upcoming quarters should the environment continue to soften.

The analyst also noted Citi's eroding consumer credit quality saying its higher-than-expected reserve build in the consumer business could be a signal of tough times in the U.S. consumer channel, which accounts for 30 to 40% of the Citi's recent profits.

Mr. Tanona placed his estimates and price target on the stock under review.

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New chief Vikram Pandit has done well to boost capital, and top up loan loss reserves, which could leave the U.S. megabank better placed for a downturn. But it still has some C$37bn of CDO exposure, C$50bn of dicey mortgage loans, and its car loans business is mostly subprime.

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