January 30, 2008

Citigroup Inc., Merrill Lynch & Co., UBS AG and other banks may post another $70 billion in writedowns should bond insurers lose their top credit ratings, according to Oppenheimer & Co. analyst Meredith Whitney.

Citigroup, Merrill Lynch and UBS together stand to lose 45 percent of the total were Moody’s Investors Service and Standard & Poor’s to cut the insurers’ AAA credit ratings, Whitney said. The banks suffered $61 billion of the industry’s $133 billion in losses from the collapse of the subprime mortgage market, according to data compiled by Bloomberg.

“When it becomes clear, as we expect it will, that more charges are on the horizon, we believe the market will take another turn for the worse,” said Whitney.

Whitney, 38, correctly predicted two months in advance that Citigroup would slash its dividend to preserve capital. Her downgrade of the largest U.S. bank helped erase almost $500 billion in value from the nation’s stock market on Nov. 1.

Earlier this month, Citigroup reduced its dividend by 41 percent and reported the biggest loss in its 196-year history as surging defaults on home loans forced an $18 billion writedown in the value of subprime-mortgage investments.

Because almost half the risk of further writedowns is concentrated among New York-based Citigroup and Merrill and Zurich-based UBS, a “systemwide bailout” is not necessary and no “systemic risk” exists, the Oppenheimer analyst said.

Merrill, UBS Fall

Citigroup added 2 cents to $27.93 in 2:12 p.m. New York Stock Exchange composite trading. Merrill fell 0.8 percent to $56.99. UBS slipped 1.6 percent to 46.06 francs in Zurich.

Whitney said Merrill might post a $10 billion writedown following an MBIA and Ambac downgrade. Merrill Chief Executive Officer John Thain said today at an investor conference that potential losses from bond insurers are only $3.5 billion at his firm.

UBS, Europe’s largest bank by assets, reported a record loss today after raising fourth-quarter writedowns on assets infected by U.S. subprime mortgages to $14 billion.

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