Citigroup slides and eyes options including merger

By Jonathan Stempel and Dan Wilchins

NEW YORK (Reuters) - Citigroup Inc (C.N) lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor.

The second-largest U.S. bank by assets is looking at options now, including a sale of parts of the company or a merger with another firm, after its stock fell 50 percent this week, a person familiar with the matter said on Thursday.

Discussions so far have been internal, and some options --such as entering into a merger where other executives end up running the company -- are unpalatable to managers at Citigroup, the person said. The bank's board of directors is set to meet on Friday, and Morgan Stanley (MS.N) is not considering a possible bid, the Wall Street Journal reported.

Citigroup did not comment on the report, repeating that it has a "very strong capital and liquidity position" and is focussed on a strategy that will generate benefits "over time." Morgan Stanley did not immediately return a call for comment.

Earlier Thursday, Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup to 5 percent from less than 4 percent, calling its shares "dramatically undervalued."

Alwaleed expressed "full and complete support" for management, including Pandit, who said this week the bank will slash 52,000 jobs and 20 percent of expenses.

Investors were unimpressed, and drove the bank's shares below $5, a level not seen since 1994. The market value of Citigroup has fallen $48.7 billion (32.8 billion pounds) this month alone.

Citigroup is not seeking any government financial aid, and is not seeing any unusual business activity, a person close to the bank said.