Citigroup, other financials off in recession worry

By Jonathan Stempel

Citigroup, a Dow Jones industrial average component, closed $2.17, or 7.4 percent, lower at $27.05, while JPMorgan Chase & Co fell 5 percent and Bank of America Corp dropped 3.8 percent. Goldman Sachs Group Inc slid 5.4 percent after a downgrade by Oppenheimer & Co analyst Meredith Whitney.

"There is speculation that the credit crunch will get worse before it gets better," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. "The subprime loan crisis in the United States will continue to hurt financial stocks, particularly the banks, and therefore Citigroup is once again under selling pressure."

"It's basically a case of a buyer's strike," said Todd Clark, director of stock trading at Nollenberger Capital Partners in San Francisco, referring to financial companies. "Anyone who doubted the economy was slowing substantially or is in recession is no longer doubting it."

Downgrades could reduce the value of CDOs, resulting in losses on top of the more than $100 billion of write-downs at such companies as Citigroup and Merrill Lynch & Co.

The market also digested a $724 million fourth-quarter loss at GMAC, the finance company owned largely by Cerberus Capital Management LP and General Motors Corp. Much of the loss came from GMAC's Residential Capital mortgage unit.

Finance companies came under pressure on Monday as brokerage downgrades of American Express Co, Wachovia Corp, Wells Fargo & Co and other companies renewed fears of rising losses from borrower defaults and residential real estate.

An economic recession could speed up the already rising pace of defaults by borrowers, hurting companies with large consumer and business loan books. Many large banks predicted slow economic growth for 2008, especially in the year's first half, but most were not counting on an actual recession.

(Additional reporting by Jennifer Coogan, Pedro Nicolaci da Costa, Chelsea Emery, Doris Frankel, Justin Grant, Richard Leong and Nick Zieminski; Editing by Gerald E. McCormick and Braden Reddall)