(Recasts paragraphs 1, 4; adds Pandit comments, other banks
and closing prices in paragraphs 8-11)
By Jonathan Stempel
NEW YORK Jan 14 Citigroup Inc (C.N) faced
growing uncertainty on Wednesday about whether it will rebound
from punishing losses, as investors drove the stock below $5,
its lowest level since a government rescue in November.
More bad news is expected on Friday, when the bank plans to
report quarterly results, six days ahead of schedule, and
analysts are looking for a fifth straight multibillion-dollar
loss. The bank is also widely expected Friday to provide
details of a comprehensive downsizing designed to ensure its
Rival JPMorgan Chase & Co (JPM.N) also moved up its
earnings report by six days to Thursday.
Once the world's largest bank, but now No. 3 in just the
United States, Citigroup is expected to shrink by about
one-third as it focuses on corporate, investment and retail
banking and trims trading operations, a person familiar with
the plan said.
Citigroup will also put unwanted businesses and assets into
a separate structure, with an eye toward their eventual sale,
the source said.
The U.S. Treasury Department has pumped $45 billion of
taxpayer funds from the Troubled Asset Relief Program (TARP),
including $20 billion on Nov. 23, when the government agreed to
a bailout, sharing in bank losses in exchange for preferred
stock and warrants.
The bailout helped avoid a collapse on the heels of the
Lehman Brothers Holdings Inc's LEHMQ.PK bankruptcy on Sept.
"I really don't know how the unraveling finishes," said
Henry Asher, president of Northstar Group Inc in New York. "It
looks like the government is forcing a controlled descent,
without going the full monty as it did with Lehman."
In a memo to employees, Chief Executive Vikram Pandit said
the bank is ready to release earnings on Friday, with "no need
to wait" another six days.
Pandit, who turned 52 on Wednesday, also said while
Citigroup's goals include a streamlining of operations and
strengthening of its balance sheet, "We are and will remain a
bank." He said the bank faces a "long-term transformation."
Shareholders have shown little patience. Citigroup shares
fell $1.37, or 23.2 percent, to $4.53 Wednesday as trading
volume topped 510 million shares.
Other bank stocks also declined, including larger rivals
Bank of America Corp (BAC.N) and JPMorgan, which fell 4.2
percent and 1.7 percent, respectively. The 24-member KBW Bank
Index .BKX slid 6 percent and touched a 13-year low.
Getting rid of major assets marks an about-face for Pandit,
who wanted to shrink the bank while keeping large parts of the
"financial supermarket" model promoted by Sanford "Sandy"
Weill, who created Citigroup in a 1998 merger.
On Tuesday, Citigroup said it will combine its Smith Barney
brokerage and other units with Morgan Stanley's (MS.N) wealth
management unit. Morgan Stanley will pay $2.7 billion and take
a 51 percent stake in the joint venture, and can buy the rest
after five years.
While the transaction will bolster Citigroup's balance
sheet and result in a $5.8 billion gain, the decline in the
stock resembled the downdraft on Nov. 17-21, the week before
Citigroup got the second TARP infusion. Shares fell 60.4
percent that week.
"We continue to be concerned that weakness in Citigroup's
share price may lead to lack of customer (or government)
confidence," Barclays Capital analyst Jason Goldberg wrote on
There has been a drumbeat of analysts' questions about
whether regulators or Citigroup directors and executives will
give Pandit time to finish the job.
"Regulators are concerned about the quality of the
management that got us where we are in the banking industry,"
said Nancy Bush, an independent banking analyst and managing
member of NAB Research LLC. "At Citigroup, the government has
far more influence than on any other bank in the industry, and
that's why there may be more force to bear there."
WHERE ARE THE BUYERS?
Pandit became CEO in December 2007, inheriting many
problems from predecessor Charles Prince.
The bank has reported $20.3 billion in net losses, and
taken more than $64 billion in credit losses and writedowns
since Pandit took over.
Critics have said Pandit, known from his days as a top
Morgan Stanley executive as a brilliant but cautious leader,
was not aggressive enough in tackling the morass that
Citigroup's $2 trillion-plus balance sheet had become.
Citigroup's ability to spin off assets may be limited. "We
question where the buyers will come from, since few are both
large enough and strong enough," wrote David Trone, an analyst
at Fox-Pitt Kelton Cochran Caronia Waller. He rated Citigroup
shares as "in line."
Ten analysts who issued estimates over the last week look
for a fourth-quarter loss of 94 cents per share, on average,
according to Reuters Estimates.
The annual cost of protecting $10 million of Citigroup debt
against default for five years rose to $410,000 on Wednesday
from $265,000 Tuesday, according to Phoenix Partners Group.
(Additional reporting by Dena Aubin, Karen Brettell and Dan
Wilchins; editing by John Wallace and Jeffrey Benkoe)