Citigroup probably will write down the value of CDOs by $8 billion this quarter, Mike Mayo, a Deutsche Bank analyst, wrote in a report to clients Tuesday after Merrill Lynch said it would sell CDO holdings for 22 cents on the dollar.
Citi values the securities mortgage-related bonds at the heart of the credit crisis at 53 cents on the dollar, the report said.
It has $22.5 billion of the securities and may have another $7 billion of writedowns to come, Mayo wrote; that could force it to raise more money, as Merrill did.
"The decision about raising new capital may be closer than we previously thought," he wrote.
He also expects Citi to write down another $1 billion because of its $2 billion of exposure to so-called monoline insurance companies. Additional writedowns would force Citi to report losses of 59 cents a share for the third quarter and 80 cents for the full year, according to Mr. Mayo, who has a "hold" rating on the stock. He previously estimated Citi would report a full-year loss of 66 cents. A Citi spokeswoman would not discuss the report.
Merrill Lynch sold $8.55 billion of stock Tuesday after announcing late Monday that it would liquidate $30.6 billion of bonds at a fifth of their face value to shore up credit ratings imperiled by mortgages.