Citigroup and Goldman Sachs are the most exposed to further writedowns from leveraged loans in the first quarter, as the value of loans and bonds created to finance leveraged buyouts plunges, Bank of America said.

Investment banks recorded losses from leveraged loans they held on their books in the third quarter of 2007, as credit markets froze and they were unable to offload the highly leveraged debt.

Many banks were able to reduce exposures in the fourth quarter as markets improved, but prices of the securities have since plunged, indicating new writedowns could be significant in spite of the smaller exposures, analysts said.

Even though exposures stand at smaller levels, the larger price declines and lack of offsetting fee income imply larger potential writedowns than during the third quarter of last year, Bank of America analysts Jeffrey Rosenberg and Clemens Mueller said in a report sent late on Friday.

The current series of the U.S. leveraged loan derivative index, LCDX, has fallen to 91.15 cents on the dollar on Monday, traders said. This is down from 99.74 cents in October when it launched, according to data provider Markit.

As of the fourth quarter of 2007 Citigroup and Goldman Sachs had the largest exposures to leveraged loans and bonds, at $43 billion and $36 billion respectively, Bank of America said.

Assuming these banks write down 10 percent of these exposures, they may need to write down as much as $4.3 billion and $3.6 billion, based on current prices, the bank added. This assumption, however, does not account for any hedges the banks may have on their leveraged debt.

JPMorgan, Morgan Stanley and Merrill Lynch, meanwhile, had exposures of $26.4 billion, $20 billion and $19 billion respectively, implying they may need to write down as much as $2.64 billion, $2 billion and $1.9 billion.

Lehman Brothers said in a presentation last week that it has reduced its exposure to leveraged loans and bonds to $4 billion from $10 billion at the end of the fourth quarter, leaving the bank exposed to a possible $400 million write down, Bank of America added.