UPDATE 3-Goldman says sell Citigroup, buy Morgan Stanley
(Recasts, adds details, background, updates share movement)
By Sweta Singh
BANGALORE Oct 21 (Reuters) - Citigroup may not be profitable over the next 12 months, said a Goldman Sachs analyst, who recommended a "paired" trade in which investors short the bank's stock (C.N: Quotazione) and buy Morgan Stanley (MS.N: Quotazione) shares.
Shares of Citigroup, the giant U.S. bank, fell as much as 10 percent to $13.64 following the report. Morgan Stanley shares rose as much as 9 percent, but later pared some of the gains to trade up about 3 percent.
"We believe weak economic data will keep the (Citigroup) stock under pressure over the next six months and it is tough to see why the stock would head higher over this period," analyst William Tanona wrote in a note to clients.
Adding Citigroup to Americas Conviction Sell list, Tanona said it will be difficult for the company to generate profitability over the next 12 months primarily due to additional write-downs and deteriorating credit market.
Tanona, who reinitiated a "buy" on Morgan Stanley, said the company has very limited exposure to consumer credit, which is an area the brokerage believes will provide the most significant headwinds for Citigroup in 2009.
Morgan Stanley will generate profits over the next four quarters, thus adding to its capital base, whereas Citigroup will lose money, thus reducing its capital base, Tanona said.
ROCKY PATH FOR CITI Continua...