More bad news for the banks. Oppenheimer analyst Meredith Whitney cut her earnings estimates on big financial firms including Citi (C), citing rising write-offs of collateralized debt obligations and other mortgage-related debt. Whitney now expects Citi to post a 2008 loss after a first-quarter writedown of $13 billion. That’s not the biggest number out there - analysts at Merrill Lynch projected earlier this month that Citi could take first-quarter writedowns of as much as $18 billion - but coming from perhaps the most closely followed analyst on the banks, it’s a number worth noting.  

Citi isn’t the only outfit feeling Whitney’s wrath. She cut her estimates on JPMorgan Chase (JPM), Bank of America (BAC) and Wachovia (WB) as well. Whitney has been warning for almost six months now of serious pain in the banking system, starting with last October’s prediction that Citi would have to cut its dividend and raise capital. Those events came to pass two months later, but these companies still aren’t out of the woods, she writes Wednesday. “Despite cutting estimates for financials over 30 times since November, we are confident that this will not be our last reduction in 2008,” Whitney warned. ”We anticipate further downside to both estimates and stock prices.”

Will the slowing economy and nervous stock markets tarnish even mighty Goldman Sachs (GS)? Oppenheimer analyst Meredith Whitney thinks so. Whitney, who was among the first analysts to question Citi’s (C) financial straits last fall, downgraded Goldman stock to perform from outperform Tuesday, citing the 40% premium Goldman shares trade at compared with peers such as Lehman Brothers (LEH) and Merrill Lynch (MER). Whitney says she expects the stock-market gap between Goldman, which managed to make money even on the collapse of the mortgage-backed securities market, and its rivals to narrow as economic conditions sour. “Goldman’s franchise remains well ahead of its peers with respect to market share but most importantly execution, and none of that has changed, in our opinion,” she writes. “We simply believe there is more probability of multiple contraction than multiple expansion in the current environment of weak/low margin capital market conditions.” That’s part of why Goldman shares, down 3%, are joining in Tuesday morning’s selloff in financial stocks.

Citi (C) shares held their ground Friday after new chief Vikram Pandit took $49 billion in troubled structured investment vehicles onto the bank’s balance sheet. The move prompted Moody’s to downgrade Citi’s debt rating, and spurred CIBC analyst Meredith Whitney to warn anew that the bank’s dividend is in grave danger. Bank of America analyst John McDonald joined Whitney in questioning whether Citi can continue to pay out $11 billion a year in dividends when the firm is, by its own admission, below its desired capital ratios.

Citi has said it doesn’t intend to cut its quarterly payout, and it’s easy to understand why. After all, dividend cuts are typically received in the marketplace as distress signals, and in a nervous market no one wants to send those.

But Citi’s problems - ranging from its hefty holdings of risky debt to its unwieldy structure and bloated expense base - are well known, and Felix Salmon, for one, has argued persuasively that Pandit could get investors on his side by decisively cutting costs and raising capital. It’s impossible to know how Citi shares would react to a dividend cut, but it seems clear from their published commentaries that neither McDonald nor Whitney expects to see Citi shares, down 40% this year, plunge again from their depressed levels. Despite his expectation that the bank will cut its dividend, Bank of America’s McDonald maintains a $39 price target on Citi, and CIBC’s Whitney writes that she believes the downside for the stock “could be under $30.” That doesn’t sound too terrible, given that Citi traded Friday at $31.