Saturday, November 22, 2008

Citgroup's Crisis Deepens as Shares Fall Further

Citi crisis deepens as shares fall further

By Francesco Guerrera and Greg Farrell in New York
November 22 2008 01:41

Citigroup’s shares lost nearly a fifth of their value on Friday as its board met in an attempt to halt a crisis of confidence in the troubled financial services group.

People close to the situation said the board was discussing a series of options, including the position of Vikram Pandit, its chief executive, and the sale of some of its businesses or even the whole company.

However, these people said there were no concrete plans for management changes or asset disposals.

Late in the day, Citi officials circulated a draft advertisement for Sunday newspapers that concluded “you can feel confident that Citi never sleeps”.

In spite of a rally on Wall Street, Citi’s shares on Friday fell 94 cents to $3.77, bringing its losses this month to 72 per cent and giving it a market value of $20.5bn – less than a quarter of rival JPMorgan Chase. The cost of insuring Citi’s debt rose.

Citi executives are worried about a flight of capital from the bank but say they have seen no unusual movement in retail or corporate deposits.

Before the board meeting, Mr Pandit held a conference call with staff in which he vowed not to break up the company, and denied reports that Citi was looking at selling Smith Barney, its US wealth management unit.

“I have got no desire to sell Smith Barney. I love that business,” said Mr Pandit, who had been under fire for a perceived failure to present a clear strategy for Citi.

During the 26-minute call, Mr Pandit reiterated his backing for Citi’s “universal banking” business model, combining wholesale, retail and investment banking. “This is a fantastic model,” Mr Pandit said.

Mr Pandit and Gary Crittenden, Citi’s chief financial officer, also urged employees to get in touch with clients and remind them that the group’s financial position was sound.

Mr Pandit, who took over in December, blamed the share price slump on misinformation and scaremongering by investors, short-sellers and rivals, saying the company was in much better shape now than a few months ago. He said the bank was working with regulators on a number of issues, a reference to the lobbying by Citi and other banks to reinstate a ban on short-selling.

In the conference call, Mr Pandit insisted the bank’s underlying business was strong, generating $100bn in annual revenues.

Those revenues, along with plans to reduce Citi’s annual expenses from their current $62bn to $52bn in 2009, would give the bank an added cushion to help it survive an economic downturn, he said. Bank analysts seem to agree that Citi’s fundamentals are sound.

Mike Mayo, of Deutsche Bank, who has been sceptical towards the bank over the past year, wrote on Friday that “we believe that there is fundamental value at Citigroup that justifies a $9 price target”. Richard Bove, of Ladenburg Thalmann, rates Citi a “buy”.

Additional reporting by Nicole Bullock

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