New York – Citigroup Inc., the biggest U.S. bank by assets, may forfeit as much as $1 billion of third-quarter profit because of the credit crunch in mortgages and high-yield debt, according to analysts at Sanford C. Bernstein & Co. LLC.
The “worst-case scenario” for Citigroup is that the New York-based company marks down leveraged-loan commitments by $1.5 billion, takes a $500 million to $1 billion markdown for credit lines to mortgage lenders and posts a trading loss of $700 million on so-called structured products, Howard Mason and Michael Howard, two Bernstein analysts in New York, said Tuesday in a note to clients.
The bottom-line impact would be an earnings reduction of $650 million to $1 billion, after accounting for compensation and taxes, the analysts said while maintaining their “outperform” rating and $65 price target on the stock. Citigroup, which currently trades at about $46 a share, is expected to report third- quarter profit of $5.72 billion, the average estimate of six analysts in a Bloomberg survey.
“Investors are concerned with credit exposure at Citi in subprime mortgage, leveraged lending and structured products,” Mason and Howard said in the note.
Dan Noonan, a Citigroup spokesman in New York, declined to comment.
Shares of Citigroup fell 85 cents to close at $45.69 in New York Stock Exchange composite trading Tuesday.
