Citigroup may need to suspend or cut its dividend to shareholders as the company makes moves to regain profitability in the wake of heavy losses linked to the mortgage and credit markets, according to an analyst.
Oppenheimer analyst Meredith Whitney, who was one of the first analysts to predict that Citigroup would cut its dividend last October as the bank sought additional capital to run its businesses, made a similar prediction on Monday.
[Citigroup] has seriously constrained earnings power that we think will result in pressure to cut/eliminate the current dividend and lead it to seek additional capital from outside investors, she wrote in a research note to.
Whitney now expects the bank to lose 45 cents per share for the year, up from 15 cents. She also dropped her 2009 estimate to 90 cents from $2.50.
In a conference call with analysts after reporting its first quarter results last week, Citigroup Chief Financial Officer Gary Crittenden said he would not rule out raising additional capital.
Whitney says that the bank may need to look for more funds because she believes four of Citigroup's 10 divisions will post losses in the second quarter, with the rest seeing reduced income.
This presents several problems for Citi, Whitney wrote in a note to clients, with the most obvious one being the company's ability to support its current dividend payout, but its lack of real earnings power also handicaps any ability to internally restore adequate capital levels.