NEW YORK - Citigroup Inc. shares shed $17 billion in market value yesterday, falling 10 percent, after Prudential Securities analyst Michael Mayo told investors to sell the stock.
The bank's earnings might be hurt by lawsuits and Latin American and consumer loans, Mayo said. New York's attorney general is expanding his investigation into whether Citigroup awarded shares of initial public offerings to corporate executives to win banking business, The Wall Street Journal said.
Shares of Citigroup, the second-worst performer in the Philadelphia KBW banks index, have lost 38 percent of their value this year as its strategy of offering clients debt, equity, merger advice and lending attracted conflict-of-interest investigations and lawsuits when its clients' business soured.
"The risks at Citigroup outweigh the rewards," said Wayne Bopp, a financial-services analyst who helps manages $30 billion at Fifth Third Bancorp in Cincinnati. "We are looking ahead six months and don't see an end to the issues."
Citigroup's stock fell $3.36 to $29.39 in New York Stock Exchange composite trading after Mayo - third-ranked among bank analysts in Institutional Investor magazine's 2001 poll - downgraded the financial-services company to "sell." The decline sent Chief Executive Officer Sanford Weill's stake in the company plummetting about $110 million.
"The firm has not adjusted its hardball management style for the nature of its current problems," Mayo wrote in a report. "More substantive changes seem needed in our view."
Citigroup earnings might be hurt by lawsuits alleging that it helped bankrupt energy trader Enron Corp. hide debt, said Mayo, who turned bearish on bank stocks in 1999 when he worked at Credit Suisse First Boston.
A ruling is expected this month on whether legal claims of as much as $50 billion may go ahead. Citigroup might pay a higher percentage than other banks if found liable, Mayo said.
Citigroup also could lose money on $11 billion in loans and other commitments in Brazil, where the leading presidential candidate has suggested that he might not honor debt agreements, Mayo wrote.
Fewer fees from stock trading and consumer loan defaults also might damage Citigroup's earnings, he said.
Citigroup's CitiFinancial consumer lending division is based in Baltimore.
Mayo said he expects Citigroup shares to fall to $28 rather than $42, which he forecast earlier. Mayo is the only analyst among 21 who recommends selling the stock, according to Bloomberg data.
Mayo also cut his Citigroup profit estimate for this year to $2.85 from $2.90 and his estimate for next year to $3.30 from $3.50. His earnings estimates are lower than those of 16 analysts polled by Thomson Financial First Call.