NEW YORK (AP) — A Goldman Sachs analyst has recommended a short-selling strategy for shares of Citigroup Inc., noting the bank is still heavily exposed to the troubled mortgage and consumer credit markets.
In short-selling, an investor borrows shares of a company and sells them, betting the stock will go down. The investor then buys back the shares, repays the loan and — if the strategy worked — pockets the difference as a profit.
Analyst William Tanona wrote in a research note Tuesday that Citigroup is likely to face continued losses from its exposure to mortgages and consumer credit loans.
Citigroup has been among the hardest hit banks by the downturn in the credit crisis.
Banks have been struggling with mounting losses and write-downs on bonds and debt backed by mortgages and other loans. As mortgages increasingly have defaulted over the past year, the value of bonds backed by the troubled loans has declined.
Banks have been forced to cut the value of their holdings or sell their investment at losses over the past year. Citigroup has taken more than $45 billion in write-downs over the past year. The broader financial services sector has taken more than $300 billion in write-downs during that period.
Nearly all banks are likely to continue to reduce their exposure to troubled assets during the quarter through write-downs and sales, Tanona wrote in the note. Tanona projects a major recovery in the financial sector is “still a few quarters away.”
In June, Tanona set a price target of $16 for shares of Citigroup. The stock closed at $17.19 Tuesday.
Wednesday August 20, 8:23 am ET