Citigroup in Capitol Hill rescue plea

Published on Saturday 22 November 2008 13:16

THE board of Citigroup was last night locked in discussions with the US government in a bid to negotiate a rescue package after a crisis in confidence that has erased half the bank's stock market value in three days.

Among several options being discussed in a series of tense meetings and telephone calls with officials on Capitol Hill is the selling off of all or part of the company, finding another bank to merge with and the replacement of its embattled chief executive Vikram Pandit.

Citigroup's shares lost 20% of their value on Friday, closing at $3.77 (2.54), down 60% for the week and reaching their lowest level since December 1992. The bank's market value is now $20.5bn from a high of $270bn in late 2006.

"It's fear and panic at this point," said Gerard Cassidy, a banking analyst at RBC Capital Markets in Portland, Maine. "Investors have seen similar movies this year, and the endings are very unpleasant."

Citigroup's market value is now also in line with Goldman Sachs. Analysts have speculated that Goldman might look to buy Citigroup or that it might look to sell its Banamex business, the second-largest bank in Mexico, in a deal that could raise as much as $15bn.

As Citigroup's fortunes diminished on Friday, Pandit went on the offensive. In a company-wide conference call he insisted that the bank had a solid capital position, does not want to change its business model and plans to keep its Smith Barney brokerage. He also warned that employees should not focus on the bank's falling share price because that is not what regulators and credit rating agencies worry about.

Today the bank will run a series of adverts in major US and international newspapers, emphasising its stability, noting that "200 million people around the globe have put their trust in Citi to take control and secure their futures".

Despite this, sources say the board is looking at Pandit's position. The bank believes it has time to negotiate with the government because depositors and derivatives clients are not showing any signs of fleeing the bank.

Some analysts believe even if customers are standing by Citigroup now, they might shy away from the bank if the company's share price falls too much.

"Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days, and the only one who comes to mind is the government," said Sean Egan, analyst at ratings agency Egan-Jones Ratings, adding that at least $50bn may be necessary.