New York - Citigroup shares plunged on Thursday near 16-year lows, as investors prepared for dismal fourth-quarter results and worried that the troubled bank might need another round of government bailout money.
Citigroup is expected to report its deepest quarterly deficit yet on Friday morning, after suffering net losses for four consecutive quarters. What investors are really interested in, however, is how Citigroup plans to pull in more cash to stay afloat in 2009.
According to a person familiar with the plans, CEO Vikram Pandit will be providing details on Friday about which businesses it aims to sell or spin off. The person spoke on condition of anonymity because he was unauthorised to discuss the plans, which are not yet public.
Speculation is growing in the market that top-level executive or board changes could be made, too.
Citigroup has already laid off thousands of employees and sold several businesses - most notably control of its prized retail brokerage, Smith Barney - to raise cash. The Wall Street Journal and the New York Times reported that two of Citi's consumer finance units, its private label credit card business, and other segments could be put up for sale.
Roger Lister, chief credit officer for US financial institutions at the bond rating company DBRS, said Citigroup needs to raise capital, and quickly, by selling some of the various businesses it acquired over the years.
Mismanagement
Lister, who worked at Citicorp for a decade before it merged with Travellers in 1998 to form Citigroup, said the company "never really succeeded in really leveraging all those pieces effectively."
"In the current environment," Lister said, "Citi has to figure out what it's best at, where it has its advantages ... and relinquish businesses where others might do better."
Anxiety is growing, though, that shrinking the company won't be enough to save it.
Shares fell 91c, or 20%, to $3.62 in late trading, after news came out that Bank of America has asked for more government aid to help it absorb losses from Merrill Lynch, the Wall Street firm it acquired last year.
Citigroup's stock fell as low as $3.36 - well below last year's lowest closing price of $3.77. And they are not far from their recent 16-year trading low of $3.05, hit in November right before the government announced its extra dose of funding for Citigroup.
The board and executives at Citigroup have long been criticised for mismanaging the bank, and that scrutiny has intensified after it went hat-in-hand late last year for $45bn in federal funding. Citigroup also got the government to backstop some $300bn in mortgages and other risky assets.
Donald Thomas, an analyst at Gradient Analytics, said investors are desperately hoping Citigroup's results on Friday will indicate that the bank has a handle on its credit problems - and that they are not spiraling out of control, as they did at the now-bankrupt Lehman Brothers.
Citigroup is not only invested heavily in mortgages, but is also exposed to other types of lending like credit cards and commercial real estate. Defaults and delinquencies on a broad range of loans have been rising due to the soaring unemployment rate and falling home prices.
"Everybody wants to know," Thomas said, "is the damage contained? How much more pain is there going to be?"
- AP