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OPPENHEIMER RATES CITIGROUP UNDERPERFORM
Oppenheimer analyst Meredith Whitney says Citigroup (C) and Morgan Stanley (MS) announced details on the formation of a joint venture wealth management business. Morgan Stanley will get 51% stake in the joint venture and pay Citi $2.7 billion cash upfront; at closing Citi will recognize about $9.5 billion pre-tax (about $5.8 billion after-tax) gain.
Whitney believes there is no other way to view this move than as a way for Citi to raise cash prior to its fourth quarter report. She says due to Citi's ongoing challenge of asset deflation, she anticipates further advances toward asset monetization/unwind.
She rates Citi shares underperform, and sees a loss per share of $3.02 for 2008 and $3.25 for 2009. She rates MS perform.
MORGAN STANLEY REITERATES UNDERWEIGHT ON HSBC HOLDINGS (HBC)
Morgan Stanley thinks HSBC Holdings (HBC) needs $20-$30 billion of capital and needs to halve its dividend. Morgan Stanley thinks HBC has one of the weaker capital ratios in Europe and the second weakest in Asia, which reinforces belief that it will have to halve dividend and raise major capital in 2009.
Morgan Stanley now expects earnings to fall more sharply in 2009, with no recovery until 2011 at the earliest. It argues that structurally, profits will be hit by falling and flattening yield curves, combined with cyclical impacts of a global recession and foreign currency; this should impair the company's U.S. dollar cash flow.
CITIGROUP CUTS ESTIMATES FOR BUNGE
Citigroup analyst David Driscoll says Bunge's (BG) lower 2008 EPS outlook is well below the company's previous guided range. Moreover, the company issued preliminary 2009 EPS outlook, below Street estimates.
Driscoll says, as he previously wrote after the company's third quarter report, just about every global variable that could affect BG is moving significantly right now - mostly in wrong direction; he is not surprised by revisions, but rather the magnitude.
He cuts $10.85 2008 EPS estimate to $6.98 (excluding items), and $8.00 for 2009 to $7.00. He thinks the shares trade near full value and doesn't see any near-term catalysts ahead. He keeps hold and $47 price target.
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