C/AIG/GM terrible bad news together: Market will be up from here

although Dow Jones was down so big and technically it broke down terribly.

Would GS want everybody make money for free?

Citigroup sinks to 10-year low, Goldman urges short sale
Thursday June 26, 10:53 am ET
By Neha Singh

BANGALORE (Reuters) - Citigroup Inc (NYSE:C - News) shares fell to their lowest level in nearly a decade after a Goldman Sachs & Co analyst said investors should sell the largest U.S. bank's stock short as losses mount from troubled debt.

In morning trading, the shares were down $1.03, or 5.5 percent, at $17.82 on the New York Stock Exchange. The shares were among the biggest drags on the Dow Jones industrial average (DJI:^DJI - News) and Standard & Poor's 500 (^SPX - News), which both fell more than 1 percent.

They also touched their lowest level since October 1998, the month that Sanford "Sandy" Weill merged his Travelers Group with Citicorp to create Citigroup.

William Tanona, the Goldman analyst, added Citigroup to Goldman's "Americas conviction sell" list and cut his price target on the stock to $16 from $20.

He recommended a "paired" trade in which investors sell Citigroup shares short, betting on a decline, and buy Morgan Stanley (NYSE:MS - News) shares.

The analyst said Citigroup might take $8.9 billion of write-downs for the April-to-June period, leading to its third straight quarterly loss. He also said the bank might need to cut its quarterly dividend for a second time this year, after lowering it 41 percent to 32 cents per share in January.

Tanona's forecast suggests deeper problems for Citigroup Chief Executive Vikram Pandit, who is trying to turn the bank around after nearly $15 billion of losses in the last two quarters, and more than $46 billion of credit losses and write-downs since the middle of 2007.

"We see multiple headwinds for Citigroup including additional write-downs, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales," the analyst wrote.

Pandit became chief executive in December, replacing Charles Prince, who resigned under pressure the previous month. Weill had hand-picked Prince as his replacement when he gave up the top job in 2003.

Last week, Chief Financial Officer Gary Crittenden said on a Deutsche Bank conference call that Citigroup could take substantial write-downs this quarter.

DIVIDEND CUT MAY BE NEEDED

Tanona said Citigroup might write off $7.1 billion related to collateralized debt obligations and associated hedges related to monoline insurers, $1.2 billion for other asset classes and $600 million for structured note liabilities.

He now expects Citigroup to lose 75 cents a share this quarter, compared with his earlier forecast of a profit of 25 cents. He also expects a full-year loss of $1.20 a share, compared with his prior view for a profit of 30 cents.

As of May, Citigroup had raised some $42 billion since last fall, including injections from sovereign wealth funds, data compiled by Reuters News show.

Tanona said the bank may now need to issue common stock or sell assets to raise capital, because regulators may forbid it from issuing more preferred or convertible securities. He also said halving the dividend could preserve $3.5 billion a year.

"Given the firm's current level of earnings power, we do not believe the dividend is safe," Tanona wrote.

A Citigroup spokeswoman declined to comment.

On June 24, Merrill Lynch analyst Guy Moszkowski projected $8 billion of write-downs for Citigroup.

Tanona also downgraded the U.S. brokerage sector to "neutral" from "attractive," saying deteriorating fundamentals will likely prolong any recovery from the credit crunch.

He projected a $4.2 billion second-quarter write-down for Merrill Lynch & Co (NYSE:MER - News), leading to a quarterly loss for the largest U.S. brokerage.

"We expect write-downs for Citigroup and Merrill to outpace what we saw from Morgan Stanley (NYSE:MS - News) and Lehman Brothers Holdings (NYSE:LEH - News) recently, due to Citigroup's and Merrill's large exposures to ABS CDOs (asset-backed security CDOs) and associated hedges with the monolines," Tanona wrote.

Brad Hintz, a Sanford C. Bernstein & Co analyst, on Thursday projected a $3.5 billion second-quarter write-down for Merrill. Banc of America Securities analyst Michael Hecht made the same forecast earlier this month.

On June 17, Goldman analysts led by Richard Ramsden said U.S. banks may need $65 billion more capital to cope with a global credit crisis that will not peak until 2009.

(Additional reporting by Tenzin Pema in Bangalore; Editing by Vinu Pilakkott)

AIG shares tumble to 11-year low
Thursday June 26, 2:28 pm ET 
AIG shares fall to 11-year low on concerns over insurer's ability to hit profit

NEW YORK (AP) -- Shares of American International Group Inc. hit an 11-year low Thursday, as investors remain concerned that the world's largest insurer could post losses for the third straight quarter.

Shares fell 92 cents, or 3.1 percent, to $28.82 in afternoon trading. Earlier in the session, shares dropped to a low of $28.55, a level not seen since 1997. Shares have fallen 51 percent this year.

New York-based AIG -- with $1.05 trillion in assets -- lost $7.8 billion during the first quarter of the year due to investments and contracts tied to bad loans. The deficit was even more massive than its fourth-quarter loss of more than $5 billion.

Earlier this month, the company ousted Chief Executive Martin Sullivan and named former Citigroup Inc. executive Robert Willumstad to replace him.

Though the management change was not unexpected, the suddenness of the decision worried some investors that the company might be in worse shape than they thought. Even after raising $20 billion in fresh capital, the insurer still faces problems with its exposure to mortgages and other types of debt.

GM drops to 53-year low, Goldman urges "sell"
Thursday June 26, 1:14 pm ET
By Kevin Krolicki

DETROIT (Reuters) - Shares of General Motors Corp hit their lowest level since 1955 and dragged down the auto sector on Thursday after Goldman Sachs cut the struggling U.S. industry's largest manufacturer to a "sell" rating and warned it would have to raise capital.

The panicky slide in GM (NYSE:GM - News) shares capped a period of growing concern about liquidity risks to U.S. automakers and suppliers from a domestic auto market reeling from record gas prices and the impact of a housing slump and tighter credit.

The Goldman Sachs warning, including the unusual "sell" call on the U.S. auto industry's largest player after a period of sharp stock price declines just ahead of the close of the second quarter, prompted selling across the sector.

GM Chief Executive Rick Wagoner said the embattled automaker had enough liquidity to carry it through the year and had financial flexibility beyond that.

"We've got a very good, solid funding base under any scenario we see, solid through the end of this year," Wagoner told reporters after an economic event hosted by U.S. presidential candidate Barack Obama. "We have a lot of options to fund beyond that."

Chrysler LLC, for its part, denied rumors it was facing a cash crunch or that it had been driven to filing for Chapter 11 bankruptcy. Those rumors had driven down loan prices for the privately held automaker, according to Reuters LPC.

"The rumor is without merit," Chrysler spokesman Dave Elshoff said. "There is no basis for the rumor."

Debt and equity markets were affected by growing concern for the deepening risks for the auto sector. The cost to insure the debt of GM and Ford Motor Co (NYSE:F - News) hit records.

GM shares were down nearly 11 percent in early afternoon trade and touched a low of $11.21.

Major GM suppliers were also hammered. Shares in American Axle & Manufacturing Holdings (NYSE:AXL - News), which supplies axles for GM trucks, dropped 12 percent. Lear Corp (NYSE:LEA - News), downgraded to a "sell" rating by Goldman, tumbled 18 percent.

Shares in Ford, which had its price target cut by Goldman, dropped almost 5 percent.

With the Thursday price fall, GM's market cap fell to less than $6.5 billion. The company has the smallest market capitalization in the Dow Jones industrial average (DJI:^DJI - News), of which it has been a component since 1925.

Next above GM in terms of market value in the Dow is Alcoa Inc (NYSE:AA - News), with a market cap of about $30 billion. Walt Disney Co's (NYSE:DIS - News) cap is 10 times GM's at about $60 billion and Exxon Mobil Corp (NYSE:XOM - News) is the leader at about $460 billion.

GM shares have lost 38 percent over the last month as more evidence has piled up that U.S. auto sales weakened further in June, raising doubts about the prospect for the second-half recovery that GM and other major automakers had anticipated.

Fitch Ratings on Wednesday cut debt ratings on GM and Chrysler ratings deeper into the "junk" category," citing the fallout from weaker sales and high gas prices.

Fitch also said it would review Ford ratings over the next six weeks, which could also result in a downgrade.

CASH BURN RAISES CONCERNS

All three U.S. automakers, which have been hardest hit by the collapse in demand for pickup trucks and SUVs, have faced scrutiny in recent days over whether they have sufficient liquidity to ride out the current downturn.

Billionaire investor Kirk Kerkorian, who has invested about $1 billion in a contrarian bet on Ford, has offered to provide more capital to support the automaker's turnaround.

Kerkorian's chief auto adviser, Jerry York, told Reuters on Wednesday that he did not expect the U.S. auto market to bounce back in the second half of this year with an only limited rebound in 2009.

Earlier this week, Chrysler drew down a $2 billion credit line from Cerberus and Daimler AG (XETRA:DAIGN.DE - News), the German car maker that sold off a roughly 80 percent stake in Chrysler to Cerberus last year.

Under terms of the sale, Chrysler had until August to draw on the credit line, which included $1.5 billion from Daimler. The credit line pays interest fixed at 7 percentage points above the London interbank rate, Daimler has said.

Chrysler, which lost $1.6 billion in 2007, has said it ended the year with $9 billion in cash. Its U.S. sales are down 23 percent so far this year.

Analysts have also fixed their sights on GM, which ended the first quarter with $31 billion in cash and undrawn credit. Deutsche Bank and JP Morgan both warned last week that GM would be forced to borrow heavily to shore up its liquidity position.

Goldman Sachs analyst Patrick Archambault, who also cut his ratings on Tenneco Inc (NYSE:TEN - News), said he expected GM shares to continue to underperform as market fundamentals deteriorate. He cut his six-month price target on GM stock by $8 to $11.

"We think GM's automotive cash flow burn this year and next is likely to lead it to look to raise capital, which we believe could lead to significant shareholder dilution and/or a cut to the company's dividend," Archambault said.