Citigroup executives talking with U.S. officials

Aim is to stabilize financial giant

shares at 15-year low

November 22, 2008|By New York Times News Service

NEW YORK - With the sharp stock market decline for Citigroup rapidly becoming a full-blown crisis of confidence, the company's executives entered into talks with federal officials yesterday 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 Inc.'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, people involved in the talks said.

The course of action, however, remained uncertain last night, these people said, and other plans may yet emerge.

But after a year of gaping losses and an accelerating decline in its stock price, Citigroup, which has $2 trillion in assets and operations in scores of countries, is running out of time, analysts said.

After a board meeting early yesterday morning, Citigroup's management and some board members held discussions with Treasury Secretary Henry M. Paulson Jr. and with the president of the Federal Reserve Bank of New York, Timothy Geithner, who hours later emerged as President-elect Barack Obama's choice to become the next Treasury secretary.

As Citigroup's stock sank, falling 94 cents yesterday to $3.77, a 15-year low, the Federal Reserve was monitoring how much money corporations and other customers were withdrawing from the bank, people involved in the discussions said.

So far, these people said, most customers and clients remained committed to Citigroup.

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

It was unclear whether any of that money would be used to make a cash infusion into Citigroup, which received $25 billion from the government in October. A second financial rescue for banks might be difficult politically at a time the struggling auto industry is being turned away in Washington.

An outright sale shouldn't be ruled out, but it appears unlikely, said Alois Pirker, an analyst at financial services research firm Aite Group. 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 versus pieces diminishes."

Pirker said sale opportunities include Citi's Global Transaction Services business and its brokerage, Smith Barney. Citigroup chief executive Vikram Pandit has said these two businesses are important to it, but Pirker said those franchises are not core to retail banking and would be attractive to potential buyers because they have performed well in the turbulent environment. As Citigroup's fortunes diminished yesterday, the company's embattled CEO went on the offensive. Pandit worked the phones and held a companywide call to shore up the confidence of anxious employees.

Later in the day, the company held a similar call with large corporate customers. Tomorrow, Citigroup plans to run full-page newspaper advertisements that acknowledge "our financial markets have been tested in unprecedented ways," but arguing that it has the diversity and experience to pull through. In a nod to the company's slogan, the ad concludes: "That's why now, more than ever, you can feel confident that Citi never sleeps."

Still, Citigroup's executives are not expected to sleep much this weekend as they continue to pursue contingency plans, including what they might do to calm anxious investors before the stock market opens Monday morning.

One maneuver that Pandit championed is for the Securities and Exchange Commission to reinstate the "uptick rule," which bars short sellers from betting against companies while their stock price is falling.

Pandit and others have suggested that Citigroup is a victim of short sellers, which some have blamed for the speeding the demise of other financial companies this year.

Among the ideas being bandied about Washington and the halls of Citigroup would be an assisted merger between Citigroup and another major bank. Another option might be for the government to purchase a large chunk of Citigroup's assets. Such an action could be structured similar to a proposed deal in Switzerland for UBS AG.

The Associated Press contributed to this article.

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