Nov. 19 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, was lowered to ``sell'' by a Goldman Sachs Group Inc. analyst who said the lender's writedowns of collateralized debt obligations may total $15 billion over the next two quarters.

``Given the dislocations in the credit markets, we have become more pessimistic,'' New York-based analyst William F. Tanona wrote to investors today, downgrading New York-based Citigroup from ``neutral.'' ``Citigroup will likely face an increasingly challenging operating environment which is likely to pressure results in many of their businesses.''

Former Citigroup Chief Executive Officer Charles O. Prince III stepped down Nov. 4 after the bank said an $11 billion writedown on the value of subprime mortgages and CDOs may decrease fourth-quarter net income by $5 billion to $7 billion. Tanona told clients today that profit may fall even further as mortgage delinquencies rise and the company fails to capitalize on opportunities because it lacks a leader.

Tanona lowered his estimate of Citigroup's earnings per share next year to $3.80 from $4.65 and his price estimate to $33. On Nov. 8 Tanona had a 12-month target of $40, while on Nov. 5 it was $48.

Citigroup fell $2, or 5.9 percent, to $32 in New York Stock Exchange composite trading. The shares have declined 43 percent this year.

`Lack of Leadership'

Former U.S. Treasury Secretary Robert Rubin took over as Citigroup's chairman, and Win Bischoff, the bank's most senior executive in Europe, as interim CEO. A search for a new CEO is underway.

``The lack of leadership at this point in Citi's storied history could not have come at a worse time,'' wrote Tanona, who joined Goldman from JPMorgan two years ago. ``It will likely take the new CEO some time before he or she decides on the appropriate course of action to undertake.''

Tanona lowered his earnings estimates for Merrill Lynch & Co. on Sept. 26, projecting writedowns announced a month later that spurred the ouster of Chief Executive Officer Stan O'Neal on Oct. 30. Today Tanona also cut his price targets for Merrill as well as Morgan Stanley, Lehman Brothers Holdings Inc., Bear Stearns Cos., JPMorgan Chase & Co. and E*Trade Financial Corp.

`Distressed Values'

CreditSights Inc., an independent research firm, said today that UBS AG may have ``substantial'' losses on $20 billion of collateralized debt obligations with the highest ratings. UBS, Europe's largest bank by assets, reported its first quarterly loss in almost five years on Oct. 30 after the U.S. housing slump led to about $4.4 billion in writedowns on fixed-income securities.

Citigroup's CDOs account for 25 percent of book value and 50 percent of tangible book value, compared with 20 percent for both those measures at Lehman Brothers Holdings Inc., Bear Stearns, JPMorgan, and Morgan Stanley, Tanona said. The bank's retail banking and credit card business may suffer as consumer-credit conditions worsen, he said.

Citigroup also may be hurt by a continued slowdown in the short-term debt market as investors steer clear of commercial paper issued by structured investment vehicles, Bank of America analyst John McDonald wrote in a note to clients today.

``SIVs face the possibility of selling assets at distressed values thereby exacerbating potential losses,'' wrote McDonald, who rates Citigroup shares as ``neutral.'' Citigroup said this month it provided $7.6 billion of financing to SIVs it runs after they were unable to pay maturing debt.

`Severely Impact'

While the bank's exposure to SIVs is unlikely to ``severely impact'' the level of risk and leverage related to its bonds and long-term debts, the lack of liquidity in commercial paper could add to losses from CDO writedowns, McDonald wrote.

CDOs repackage pools of assets such as mortgage bonds and buyout loans into new securities with varying risks. SIVs borrow in the short-term commercial paper market to invest in longer- dated securities ranging from mortgage bonds to bank debt.

By contrast, Citigroup recommended that investors buy U.S. bank stocks. New York-based analyst Tobias Levkovich raised his rating on the companies to ``overweight'' from ``market weight'' because of ``compelling valuation, depressed earnings revision data and awful investor sentiment.''

``The banks group has taken some sharp hits due to the subprime woes, and there appears to now be a pile-on effect that seems to be overdone,'' Levkovich wrote in a note dated Nov. 16.

Targets Lowered

Citigroup's losses and the departure of Prince came after New York-based Merrill, the biggest brokerage, said writedowns exceeded $8 billion.

Citigroup, with more than $2.35 trillion in assets, stumbled after racking up some $55 billion of risk in businesses that invested in subprime mortgages or CDOs, stored them for resale or accepted them as collateral for loans.

Tanona cut his price estimate for Merrill to $59 from $66, and for Morgan Stanley to $61 from $66. The estimate for JPMorgan was lowered to $46 from $51, and Bear Stearns was decreased to $106 from $118. Lehman's was reduced to $70 from $71, while E*Trade was slashed to $6 from $15.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net.

Last Updated: November 19, 2007 16:36 EST