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Shares in Citigroup Inc. (C: 3.17 +0.63%) fell sharply Thursday after Goldman Sachs Group (GS: 152.0699 +0.64%) analyst William Tanoma singled the firm out for more mortgage-led losses in its upcoming Q2 earnings report, saying that the firm could take writedowns of as much as $8.9 billion in the quarter.

Tanoma has been consistently bearish on Citi since late last year, but his remarks in a note date June 25 certainly seemed to resonate with skittish investors — shares were at $17.61, down 6.58 percent, when this story was published, their lowest level since October 1998.

Tanoma added Citigroup to Goldman’s so-called “conviction sell” list and cut his price target on the stock to $16 from $20, suggesting that the firm would need to further cut its dividend, and went so far as to recommend selling Citigroup short while simultaneously buying shares in Morgan Stanley (MS: 27.05 +1.69%).

“We see multiple headwinds for Citigroup including additional write-downs, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales,” he wrote in a research note, according to a published report by Reuters.

Tanoma — famously bearish on Citi throughout most of the credit crisis — estimated a $7.1 billion loss from CDOs and monoline bond exposures alone, underscoring the widespread impact of recent downgrades to major bond insurers MBIA Inc. (MBI: 5.06 +3.05%) and Ambac Financial Group Inc. (ABK: 0.6224 -4.25%).

His warning comes a day after Merrill Lynch analysts projected a second-quarter loss and $8 billion of write-downs at Citi.

While the bank’s exposure to troubled assets is broad, Citigroup has certainly seen its share of losses derived from mortgage banking activities. 90+ day delinquencies on $154.6 billion of first mortgages in the bank’s portfolio jumped to over 3 percent during the first quarter, while severe delinquencies on $62.5 billion in second liens rose to 1.45 percent in the same time frame.

$58.1 billion of the first mortgages Citigroup held were low-doc or no-doc loans, according to an investor presentation in March.

“Citigroup’s newly resuscitated motto maintains that ‘Citi never sleeps.’ The bank’s investors, coincidentally, also are suffering some insomnia-filled nights,” wrote Heidi Moore in the Wall Street Journal’s Deal Journal blog. “The capper? With the stock opening this morning at $17.26, Citi’s market cap has fallen below $100 billion.”

It stood at just $92.71 billion when this story was published — in contrast, Bank of America Corp. (BAC: 14.47 -0.07%), set to close in on a deal to acquire Countrywide Financial Corp. (CFC: 0.00 N/A) on July 1, stood at $113.6 billion.

Citigroup wasn’t alone in incurring analyst wrath Thursday, however, as Goldman’s Tanoma (along with others) noted expectations of large writedowns at Merrill Lynch & Co. (MER: 11.78 0.00%). Writedowns could be as large as $4.2 billion for the second quarter, if the analyst estimates are to be believed.

Disclosure: The author was long CFC and held no positions in other publicly-traded firms mentioned when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.