Citigroup Inc (C.N: Quote, Profile, Research) may need to slash its dividend 40 percent to preserve capital, and with Merrill Lynch & Co (MER.N: Quote, Profile, Research) and JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) may write off $33.6 billion of debt this quarter as the global credit crunch deepens, a Goldman Sachs & Co analyst said.

“It will be a couple of quarters before the current credit crisis is fully digested by the markets,” the analyst, William Tanona, wrote in a report released on Thursday. “Fourth-quarter trading results are likely to be among the weakest we have seen in some time.”

Tanona nearly doubled his forecast for write-downs after mortgage losses led investors to shun debt they once thought safe but now deem risky.

He now expects Citigroup, Merrill and JPMorgan to write off a respective $18.7 billion, $11.5 billion and $3.4 billion for collateralized debt obligations this quarter, up from a respective $11 billion, $6 billion and $1.7 billion.

The credit crisis deepened on Friday as Wachovia Corp reported a potential $1.7 billion loss on mortgage-related debt, while credit card company Capital One Financial Corp said more customers are missing payments.

The news helped cause losses in broader market indexes, on expectations that mounting write-downs and bad loans may plunge the economy into recession. Shares of financial companies rebounded, but after weeks of heavy selling on worries about the impact of the credit downturn on their bottom lines.

Merrill Lynch & Co (MER.N: Quote, Profile, Research) plans to announce about 1,600 layoffs after disclosing fourth-quarter write-downs, CNBC reported on Thursday.

The layoffs are likely to be in trading positions and related areas, and will not likely include the investment banking or private client groups, CNBC’s Charlie Gasparino reported.