Goldman downgrades fellow banks

Analyst cites industry deterioration and a lengthy economic recovery for lowering its view, rating Citigroup a 'conviction sell.'

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By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Goldman Sachs said it lowered its rating on the U.S. broker industry because of continued deterioration of the banking industry and the prospect of a lengthy recovery.

"We are lowering our coverage view on the brokers to Neutral from Attractive, as we see limited near term catalysts," read the report, published Wednesday by Goldman Sachs (GS, Fortune 500) analyst William Tanona. "Fundamentals continue to deteriorate as expected, but the pace of deterioration appears to be far worse than we originally anticipated."

In his report, Tanona said he upgraded the group to "attractive" after the collapse of Bear Stearns in March because he did not see a high probability of another bank failing. He said he downgraded the industry because he doesn't see many prospects for improvement in the near future.

"Although we still believe that to be the case, we are hard pressed to find a catalyst that will move the group significantly higher over the next few months as fundamentals continue to deteriorate," wrote Tanona. "In addition, we also believe a recovery will take longer than originally anticipated."

Goldman Sachs also downgraded Citigroup (C, Fortune 500) to "conviction sell." Tanona expects the firm to take an additional $8.9 billion in writedowns in the second quarter. The analyst also expects "significant" writedowns for Merrill Lynch.

"We see multiple headwinds for Citigroup including additional writedowns, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales," read Tanona's report.

The firm maintained its "conviction buy" for Morgan Stanley (MS, Fortune 500). To top of page

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