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Citigroup's Options Fading

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By MADLEN READ

The Associated Press

Published: November 22, 2008

NEW YORK - Citigroup's options are dwindling along with its stock price as the credit landscape deteriorates and fears escalate about future loan losses at the company.

As the banking giant's shares slid below $4, analysts said Friday that it may be forced to merge or sell some of its prized businesses. Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.

Raising more money on the open market is "pretty much off the table" with shares at $4, said William Fitzpatrick, an equity analyst at Optique Capital Management. And raising more cash from outside investors or the government would be "a Band-Aid."

"You're going to have to see more sizable divestitures," Fitzpatrick said. "They're going to have to make changes here, and they don't have time on their side anymore."
Chief Executive Officer Vikram Pandit reiterated on Friday his support for the bank's current model, but the bank's board of directors is scheduled to meet Friday to discuss whether to sell all or part of itself, The Wall Street Journal reported.

After the downfall of Bear Stearns Cos., Lehman Brothers Holdings and American International Group, the market is losing confidence in yet another financial institution. And again it has very little to do with the company's current levels of cash; right now, Citigroup is practically swimming in capital.

What investors are worried about is the future. They are betting that all the risky debt sitting on Citigroup's balance sheet will eventually turn into losses as the economy worsens and the markets stay turbulent - losses that could be nearly impossible to reverse.

Citigroup's shares tumbled to $3.77 to their lowest level in more than 15 years Friday, continuing a sharp, weeklong plunge that could not be stemmed by Saudi investor Prince Alwaleed bin Talal's decision Thursday to raise his stake in the company to 5 percent from less than 4 percent.

The shares have shed about 60 percent of their value since last Friday.

And it's not just stockholders getting nervous - Citigroup bondholders have grown anxious, too. The cost to insure against a Citigroup default on its debt has more than doubled over the past week to $500,000 a year per $10 million of debt, up from $215,000 last Friday.

CEO Pandit held a call Friday morning with senior managers that did not reveal a shift in strategy for the company.

On Monday, Pandit said the universal banking model is "the right model," and that Citigroup's strategy is "to be the world's truly global universal bank."

Citigroup is considered the most vulnerable among the major U.S. banks, failing to turn a profit in the past four quarters when rivals such as New York-based JPMorgan Chase & Co. and Charlotte's Bank of America Corp. managed to do so.

The bank has been rushing to get leaner and wind down its assets backed by risky debt. Monday, Citigroup said it will cut 53,000 jobs, on top of 22,000 cuts previously announced.

The subprime residential mortgage crisis has swelled into a full-blown debt crisis for not just Citigroup, but other banks as well, leading to defaults in everything from leveraged loans to credit card debt to commercial real estate loans.

Even JPMorgan Chase & Co., one of the nation's stronger large banks, is shedding about 10 percent of its investment bank staff to better navigate the tough climate.

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