Citi/Merrill to Face Massive Write downs in Q1

The financial sector continues to get battered by the deepening housing crisis. Many on the street expected the majority of the financial write downs would be taken in the 4th quarter of last year. Well as the numbers start coming out it looks like 1st of '08 is going to be just as bad.

Meredith Whitney of Oppenheimer, who is become a star analyst on Wall St. because of her accurate calls on the financials, predicts in a report today the following write downs:

"She said Citigroup's first-quarter write-down could total $13.12 billion, and that write-downs in the sector could top $50 billion.
"Many expected the fourth quarter to be the 'kitchen sink' for the industry," Whitney wrote in a separate report dated Thursday. "First-quarter results (will) be a rude awakening."
In October, Whitney correctly predicted that Citigroup would cut its dividend and raise $30 billion of capital. She expects more banks to seek new capital, with Citigroup "most needing of the swiftest and largest capital raise."
Whitney now expects Merrill to lose $3 per share in the first quarter, and tripled her projected write-down from $2 billion. She had previously forecast a profit of 45 cents per share. The analyst also cut her 2008 profit-per-share forecast to 20 cents from $4."

"UBS, meanwhile, may suffer a first-quarter loss of $2.75 per share, Whitney wrote. She previously forecast a profit of 72 cents per share. The analyst cut her 2008 profit per share forecast to 45 cents from $3.70.
Whitney wrote that UBS faces write-downs of $6.86 billion on CDOs, $3.19 billion on Alt-A loans, $650 million on leveraged loans and $355 million on commercial real estate."

These numbers are staggering: $13 billion in writedowns for Citi, $6 billion for Merrill, and $11 billion for UBS. Expect this to force banks to hoard more cash and make lending standards even more tough. They will also be pressured to raise capital. This is being shown in the Libor rate today as it has hit its highest level since March 14th according to Bloomberg. This higher rate is another indicator to use that tells you banks are hoarding cash instead of lending.

As these foreclosures continue to rise so will the write downs at the banks.

Also today:

The foreclosure rates on subprime were also released by the Fed on CNBC today for the fourth quarter. The Fed said that there were 180,000 subprime foreclosures in the 4th quarter. The 90 day delinquency rates on subprime were at 24%!!!. So 1 in 4 subprime loans is now 90 days past due.

This data shows that the end seems to be nowhere in sight. Expect many of these 90 day past due homes to be foreclosed on shortly. this as a result will further depress housing prices as it just adds to inventories and banks are forced to sell these foreclosed properties at a huge discount. The crisis continues to deepen in the housing market and the time bomb keeps ticking.