Deutsche Bank Cuts Estimates On Citigroup (C) On Loan Losses
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Deutsche Bank said the biggest issue U.S. banks will face in 2009 is loan losses. The firm expects commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. They said Citigroup (NYSE: C) could be one of the worst hit and lowered estimates on the stock today to reflect this view.
The firm lowered 2009 estimates on Citi by 30 cents to a loss of $1.00 and 2010 estimates by 40 cents to EPS of $0.75, which mostly reflect higher loss rates and lower revenues than previously modeled.
Analyst Mike Mayo said, "Worsening economic trends should put additional pressure on Citigroup’s loan portfolios (esp. cards, US. residential and commercial mortgage, and international consumer) as well as the banking industry in general. Specifically, we expect commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. Reasons include an increased percentage of loans with higher losses (construction, credit cards, home equity), greater consumer leverage, and sooner problem recognition by banks."
The firm is maintaining their Hold rating and $9 price target on Citigroup.
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