Citigroup and Merrill Lynch shares plunge after downgrades

(Times Online) -- Shares in Merrill Lynch and Citigroup plunged Thursday as leading analysts cut their forecasts for both groups' second-quarter results on fears that each faces more huge hits from the credit crunch.

Citigroup's shares fell by $1.27, or 6.74 per cent, to $17.58 in early New York trading, their lowest value since October 1998. This came after William Tanona, a Goldman Sachs analyst, tripled the net loss he expects the group to make in its second quarter to 75 cents a share, or $3.75 billion (£1.9 billion).

Although this would be less than the $5.1 billion group loss that Citigroup reported for the first quarter, it would put the bank into the red for the third consecutive quarter.

Shares in Merrill Lynch tumbled by $1.82, or 5.13 per cent, to $33.64 in midday trading, as Brad Hintz, an influential analyst with Sanford Bernstein, changed his second-quarter forecast for the group from a 82 cents per share profit to a loss of 93 cents a share, or $832 million.

This compares with a $1.97 billion group loss for the previous three months and would mark Merrill's fourth consecutive quarterly loss.

The banks' falls helped the Dow Jones industrial average to sink below 11,740.15, its lowest closing level this year, which occurred in March. The index fell below its January intraday low of 11,634.18 in late morning trading and closed at 11,453.40, down 358.40.

Mr Tanona expects Citigroup to report a total of $8.9 billion in losses this quarter from the credit crunch, adding to the more than $46 billion of losses it has already made in the past year.