Published November 22, 2008

Citi ponders painful choices as shares plunge

Beleaguered banking giant said to be weighing merger, sale of assets, fund raising

By ANDREW MARKS
NEW YORK CORRESPONDENT
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FIRST, it was Bear Stearns' turn to ignite a crisis in the financial markets, followed by the mortgage giants Fannie Mae and Freddie Mac, and then Lehman Brothers and AIG. Now, it appears that it's Citigroup's turn.

NOT SO MERRY CHRISTMAS
Citigroup has sold tens of billions of dollars' worth of risky assets and announced plans to eliminate 52,000 jobs by next June

Just a few short months ago, Citi was the largest American bank by market capitalisation. Now, fears that it does not have the capital reserves to survive many more rounds of write-offs have sent the global banking behemoth's shares into a precipitous plunge over the last week. In four days, it has lost more than half its value, culminating in a 26 per cent plunge on Thursday.

A Citigroup spokesman had no comment to make, but published reports said Citi executives were huddling yesterday morning to discuss all strategic alternatives to raise cash, including sale of assets, or hitching up with another bank. Possible partners could include Morgan Stanley, Goldman Sachs, or State Street Bank.

The fear that one of the most important banking institutions in the world - with literally trillions of dollars of other financial companies' money tied to its operations - may collapse sent ripples through the stock market, pulling down all the major US banks on the New York Stock Exchange and reigniting the flames of the financial crisis to levels even higher than the worst seen in the days following Lehman Brothers' bankruptcy.

After another late-afternoon plunge sent stocks to another day of stunning losses on Thursday, the Dow Jones Industrials has been halved since achieving its record high little more than a year ago, and has essentially given up all of its gains of the past decade, falling to levels not seen since 1997.

The bluechip index gained 131 points at the opening bell yesterday. But by 10am, the index had retreated, registering a modest gain of just six points at 7,558.

Citigroup, which has registered four consecutive quarters of losses and has already had to write off more than US$20 billion, has been feeling the pressure of investors worrying that it cannot handle the additional losses expected from credit cards, mortgages and even commercial real estate loans that could overwhelm its efforts to slash costs and add deposits. The group has sold tens of billions of dollars' worth of risky assets, improved its capital position and announced plans to eliminate 52,000 jobs by next June.

'We are entering 2009 in a strong position, much stronger than we entered 2008,' CEO Vikram Pandit said in a speech to employees this week. 'We will be a long- term winner in this industry.'

But the selling has got so bad - reminiscent, in fact, of the runs on shares of Bear Stearns last spring and Lehman Brothers in September - that the once seemingly unassailable bank is now desperately looking for ways to raise capital, including finding a possible merger partner or raising cash in the coming days to arrest a sharp slide in the firm's stock price.

'Citi executives keep saying they've got the reserves to weather the storm of write-offs, but by falling below US$5, they've fallen into a much more serious peril,' noted Marc Pado, chief market strategist at Cantor Fitzgerald. 'Many mutual funds and institutional investors - in particular, pension funds - must unload shares of Citigroup to comply with investment guidelines if its shares remain below US$5 by year-end,' he said.

'Everybody's too big to fail now, especially Citi, but investors have to deal with the real possibility that another big government bailout could significantly dilute or even wipe out current shareholders,' said Mr Pado.

On Thursday, Citigroup officials began pushing Securities and Exchange Commission officials to reinstate the so-called uptick rule, which made it more difficult for professional short-sellers to short Citigroup's stock.

Citigroup is hardly alone among the major US banks in its distress. Several big banks' shares have also slumped, including Bank of America, JPMorgan, Goldman Sachs and Wells Fargo.