NEW YORK (Reuters) - It could take Citigroup <C.N> nearly three years to recoup losses on any further substantial write-downs of its collateralized debt obligations, a scenario analysts at CreditSights Inc. say could spark a takeover by smaller rival JPMorgan Chase & Co <JPM.N>.
By Tim McLaughlin
NEW YORK (Reuters) - It could take Citigroup <C.N> nearly three years to recoup losses on any further substantial write-downs of its collateralized debt obligations, a scenario analysts at CreditSights Inc. say could spark a takeover by smaller rival JPMorgan Chase & Co <JPM.N>.
"The prospect of having to stomach Draconian marks against outsized CDO and SIV exposure could put Citi in a precarious position in terms of capital levels," CreditSights, an independent fixed-income research firm, said in its analysis.
As a result, Citigroup, the largest U.S. bank by assets, could have to consider a dividend cut, a major asset sale or even a takeover by a stronger bank, CreditSights said.
!ADVERTISEMENT!JPMorgan is seen as potential acquirer because its management team, led by CEO Jamie Dimon, has worked at Citi. Dimon also is seen as someone who could combine the two banks for big cost savings, CreditSights said.
A 15 percent reduction in operating expenses could increase profit by more than $6 billion, CreditSights said.
JPMorgan declined comment. Citigroup was not immediately available for comment.
Such a takeover would be huge, approaching a $200 billion price tag. Citigroup's current market capitalization is about $172 billion.
"Following the ouster of CEO Charles Prince, Citi is yet to unveil a new CEO," CreditSights said. "One of the options would be to sell the company to JPMorgan."
Citigroup's board meets this week. A new CEO could be announced. Frontrunners include Citi executive Vikram Pandit, who oversees trading, investment banking and alternative investing, and former Citigroup President Robert Willumstad.
Estimates by CreditSights said it would take Citigroup 2.7 years to earn back the money lost on a 25 percent write-down on its CDO exposure of about $46 billion.
Citigroup's potential problems become even more worrisome when you consider its roughly $66 billion exposure to SIVs.
"One key question is whether Citi can continue to support its SIVs by purchasing their short term obligations without demonstrating recourse that could require the company to bring the assets on its balance sheet," CreditSights analysts said in their report.
(Reporting by Tim McLaughlin, editing by Dave Zimmerman)
