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Citi Writedowns Never Sleep


Shareholders wonder when bloodletting stops.


Citigroup (C) has received an awful lot of unflattering press over the past year or so. Headlines have ranged from the departure of CEO Chuck Prince to huge fourth quarter 2007 and first quarter 2008 losses. As a result of its woes, its stock is now some 60% off of its 52-week high.

Is all the bloodletting finally over? Probably not.

According to CNBC, Citi's CFO, Gary Crittenden, indicated the company could take substantial writedowns for certain mortgages and loans in the second quarter.

The dollar amount of these anticipated writedowns wasn't quantified, but an Associated Press article indicated that "Crittenden did say that Citi's second quarter writedowns on structured debt products known as collateralized debt obligations, or CDOs, would be lower than they were in the first quarter." The bank marked down the value of its CDOs by about $3 billion in the first quarter.

The survivors -- I mean shareholders -- have actually been pretty patient. But on the heels of this latest news their patience has to be running thin and, come tax-loss selling season, shares could really take a beating. Moreover, some of the institutions that dabble in this stock may bail over the remainder of the year for window dressing reasons; the saga has simply dragged on for too long.

Wall Street expects the New York-based investment bank to earn $0.35 per share this year, but is this achievable now? Don't be surprised to see some of the covering analysts scale back their numbers for CYA purposes.

There's a good chance management could decide to scrap the year and write or lay off everything but the kitchen sink - anything to lump all of the bad, unsurprising news into this year's earnings results. At this point, what does Citi have to lose? It already ticked off a chunk of its investor base and its earnings will probably be lousy no matter what. And it will make next year's results look all the prettier.

Then again, Crittenden didn't come out and heavily ratchet down future estimates, which is a positive, especially since the operating environment remains so difficult.

Overall, the news isn't good and there may yet be more downside to the stock. Conversely, it may be nearing a bottom and a good entry point could emerge later this year.

Citigroup closed down $0.23, or about 1.1%, in trading Thursday.

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No positions in stocks mentioned.

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