Citigroup weighs options including firm's sale as shares slide

Citigroup’s crisis deepened Thursday as its shares continued to slump in spite of a planned investment of about $250 million by Prince Alwaleed Bin Talal, its largest individual investor.

The 26.4 per cent fall in shares, which closed at $4.71 in New York, prompted Citi’s directors and executives to look at strategic options, including selling part or all of the company.

With roots stretching back to 1812 and more than 200 million customer accounts in 106 countries, Citigroup is an icon of global capitalism.

It is getting battered by the same financial storm that has already remade the face of Wall Street, forcing the sale of Bear Stearns Cos. and Merrill Lynch & Co earlier this year, and triggering the bankruptcy filing of Lehman Brothers Holdings Inc.

People close to the situation stressed the discussions were preliminary and internal, and Citi management’s preferred option, championed by the chief executive, Vikram Pandit, was to remain independent, FT reported.

The internal discussions do not signal that Citigroup's board and management are backing down from their insistence that the New York-based company has ample capital, funding and strategic direction, people familiar with the matter told the WSJ.

Citi’s directors were in constant contact throughout the day on Thursday and a board meeting is scheduled for Friday.

As the turmoil surrounding Citi grew, bankers and customer managers redoubled efforts to prevent a flight of capital, according to people close to the situation, FT added.

However, they said Citi had not experienced unusual movements in deposits, corporate balances or prime brokerage accounts, the reports suggested.

A Citigroup spokeswoman said in a statement Thursday evening: "Citi has a very strong capital and liquidity position" and is "focused on executing our strategy", which includes cutting expenses and selling assets. "We believe the benefits will be seen over time."

SAUDI PRINCE BUYS STAKES

The billionaire Saudi prince – who invested in Citicorp, as it was then known, in 1991 when it was in financial straits – said he would raise his stake to 5 percent from 4 percent. At Citi’s current market value of just over $25 billion, the new investment would cost about $250 million.

In a statement, the prince said Citi’s shares were “dramatically undervalued”. He expressed “full and complete support” for Pandit, who is under growing pressure to deal with the financial services group’s crisis.

The slide in Citi shares, which have lost nearly half of its market value this month alone, is raising concerns.

The cost of insuring Citi’s debt against default continued to climb, and interest rates on its debt were also higher.

Citi executives say the group has bolstered its capital position after raising $50 billion from investors and selling $25 billion of preferred shares to the government.

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Citi shares slumped almost 50 percent in the last two days, while J.P. Morgan Chase & Co shares slid 18 percent and Bank of America Corp fell 14 percent on Thursday.

Weighing down the shares has been the Treasury Department's decision last week not to buy troubled assets from banks. Citigroup's balance sheet includes battered securities and loans that many investors hoped could be offloaded to the government.

In Washington, Citigroup officials this week have been urging lawmakers and regulators to intervene by making it tougher for investors to place bets that the company's share price will fall, a strategy known as "short selling", according to the FT and WSJ reports.

The banks are lobbying the Securities and Exchange Commission (SEC) to reinstate the ban it temporarily imposed this autumn on short selling of financial stocks, the sources said.

SEC Chairman Christopher Cox said he would hold a teleconference with international regulators on Monday to discuss short selling and other matters.

In a statement, he said it was essential that "there be close coordination among international markets to avoid regulatory gaps and unintended consequences".