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Citigroup pressure builds

Citigroup shares have dropped 60 percent in a week as the financial giant was said to be looking at selling off pieces of itself — or the entire company — to help rebuild investor confidence.

Associated Press

Citigroup shares have dropped 60 percent in a week as the financial giant was said to be looking at selling off pieces of itself — or the entire company — to help rebuild investor confidence.

NEW YORK — With the sharp stock price decline for Citigroup becoming a full-blown crisis of confidence, the company's executives entered into talks with federal officials on Friday about how to stabilize the struggling financial giant.

In tense meetings and telephone calls, the executives and officials weighed several options, including whether to replace Citigroup's leadership or sell all or part of the company. Other options discussed included having the government try to steady Citigroup with a public endorsement or a new financial lifeline.

Pressure intensified as the stock fell below $4 a share Friday and fears escalated about future loan losses. The Federal Reserve was carefully monitoring how much money corporations and other customers were withdrawing from the bank, people involved in the discussions told the New York Times.

With Citigroup's troubles opening a new chapter in the long-running financial crisis, government officials said that Treasury was considering whether to ask for the second half of the $700-billion rescue fund approved by Congress in September.

Chief executive Vikram Pandit told managers earlier in the day he opposed breaking up the company. Citigroup employs more than 3,000 people in the Tampa Bay area and, globally, is a megasized company of more than 300,000 employees.

The government was instrumental in JPMorgan Chase & Co.'s buyout of Bear Stearns and Washington Mutual Inc., deals that left shareholders with little or no payouts.

Citigroup, which said Monday it will cut 53,000 jobs on top of 22,000 cuts previously announced, is considered the most vulnerable among the major U.S. banks. It has failed to turn a profit in the past four quarters when rivals such as New York's JPMorgan Chase & Co. and Bank of America Corp. of Charlotte, N.C., managed to do so.

Citigroup's shares tumbled as low as $3.05 a share Friday before recovering to close at $3.77 a share, a decline of 20 percent that left them at their lowest level in nearly 16 years. It was a continuation of a sharp, weeklong plunge that could not be stemmed by Saudi investor 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 60 percent of their value since the previous Friday.

Citigroup already has 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," given the recent plunge in the bank's shares, said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. And raising more cash from outside investors or the government would be "a Band-Aid."

An outright sale shouldn't be ruled out, but it appears unlikely, said Alois Pirker, an analyst at Aite Group, a financial services research firm. Not only are there few potential buyers right now, but "firms prefer to cherry-pick," he said. "If you don't have a well-integrated shop, the benefit of taking over the whole vs. pieces diminishes."

Pirker said sale opportunities include Citi's Global Transaction Services business and its brokerage, Smith Barney. CEO Pandit has said that these two businesses are important to Citigroup — but these two franchises are not core to retail banking and would be attractive to potential buyers, Pirker said, because they have performed well in the recent turbulent environment.

Selling off the businesses in a particular region is another option, Pirker said. Recently, Citigroup sold off its retail banking business in Germany — it could do the same with Japan, for example, he said.

Citigroup also could consider a merger rather than an outright sale. Fitzpatrick said there are a number of firms that would be eager to take over some of Citigroup's businesses — particularly a company like Goldman Sachs Group, an investment bank that recently turned into a bank holding company and is now on the prowl for deposits.

Citigroup pressure builds 11/21/08 [Last modified: Thursday, November 4, 2010 10:09am]
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