Shares of Citigroup Inc. sank Monday morning as analysts remained concerned about mounting credit losses for the bank.
Analysts also cut estimates to account for a delay in the bank's plan to convert preferred stock to common shares.
The credit concerns come despite New York-based Citigroup announcing Friday that it lost $966 million, or 18 cents per share, during the first quarter after paying preferred dividends, easily beating analysts' expectations for a wider loss of 34 cents per share. The bank said before paying dividends tied to a private stock offering in January 2008, it was profitable, earning $1.6 billion.
Citigroup has been among the hardest hit banks by the ongoing recession and credit crisis. The bank has posted six-consecutive quarterly losses, and has received $45 billion in government funding and a federal backstop on roughly $300 billion in assets to help it stabilize its capital base.
"Credit losses, which we see as critical in drawing a line in stabilizing Citi's capital base, continue to grow at a rapid rate," Goldman Sachs Group Inc. analyst Richard Ramsden wrote in a research note. Ramsden said first-quarter profit was bolstered by one-time items. Excluding those items, Ramsden said Citigroup would have posted a loss of 38 cents per share for the quarter.
Ramsden maintained a "Sell" rating and price target of $1.50 for the stock because of those concerns about credit quality. That price target implies downside of 58.9 percent from its closing price Friday of $3.65.
Citigroup shares fell 56 cents, or 15.6 percent, to $3.07 in Monday morning trading. In early March, Citigroup hit an all-time low of 97 cents.
On Friday, Citi said its provision for loan losses reached $10 billion in the first quarter, including $2.7 billion to build reserves for future losses. Nearly all banks are facing mounting credit losses as unemployment continues to rise and more customers fall behind on payments on loans ranging from mortgages to credit cards.
Fox-Pitt Kelton analyst David Trone noted that the second quarter will likely be tougher for Citigroup than the first and that investors should avoid the stock in the near term until there is a better sense of the bank's potential profitability. Trone rates Citi shares as "In Line" with a price target of $3.
Trone also cut his 2009 earnings estimates to account for a delay in the banks planned conversion of preferred stock to common shares. Citi is delaying the conversion until after the government completes its bank stress tests.
The nation's top banks are undergoing government stress tests to determine how they would perform under various economic scenarios. The tests are supposed to determine if the banks need more capital to protect against a worsening economy. The results are due out in the coming weeks.
Citi is converting preferred stock to common stock as part of a plan to improve its capital ratios, measurements used to determine the health of a bank. Until that conversion is completed though, the bank must continue paying dividends on the preferred shares.
Trone cut his estimates to account for the added dividend payments that will continue until the conversion. He lowered his 2009 estimate to a loss of 87 cents per share from 45 cents per share.
