Battered Citigroup Strives To Strengthen Confidence

A defiant Citigroup proclaimed itself in good health yesterday even as its stock price completed a one-week, 60 percent swan dive, highlighting renewed investor concern about the long-term prospects of the nation's largest banks.

Lenders are facing massive losses across a wide range of businesses as the economy unravels at a quickening pace, and investors have concluded that some of the largest banks, including Citigroup, will need to raise more money.

Some investors also appear to be betting that the Bush administration is out of time, tools and willpower to save another bank. Simon Johnson, former chief economist at the International Monetary Fund, compared the market movement to an attempt by speculators to collapse a foreign currency by betting that the government won't invest enough money to reverse the decline.

"The market is testing Mr. Paulson," said Johnson, now a professor of entrepreneurship at the Massachusetts Institute of Technology. "They basically have $60 billion left to last them two months, and now they have to deal with some increasingly serious problems."

Citigroup's executives launched a fierce campaign yesterday to convince investors and analysts, government officials, and even their own employees that the company is in a strong position to weather the economic crisis. Chief executive Vikram Pandit accused investors of "fear-mongering," according to a person who heard him speak on a conference call with employees yesterday.

Federal regulators are watching the situation and are in contact with the company's executives but are not taking an active role, believing that Citigroup is in much stronger financial condition than banks that have recently collapsed, people familiar with the matter said. The government remains committed to preventing the collapse of any large financial institution, those sources said, speaking on condition of anonymity because they are not authorized to speak publicly.

Citigroup's board met yesterday to discuss options, including the sale of business units, according to people familiar with the situation. Pandit has said that he strongly opposes the sale of core units such as the Smith Barney brokerage.

Citigroup is also pushing the Securities and Exchange Commission to suspend short-selling, the practice of betting on a decline in a company's stock price, which can create its own momentum as investors drive down prices, according to industry and government sources. The company has the support of leading industry trade groups, but two industry sources who had been in contact with the SEC about the matter said regulators are disinclined to comply.

The SEC banned short-selling on hundreds of financial stocks for several weeks earlier this fall. But the agency concluded the initial effort was counterproductive, because it led some large investors to sell all their holdings and leave the market, undermining the stated purpose of shoring up stock prices.

Investors dropped Citigroup's stock to $3.77 a share in trading yesterday on the New York Stock Exchange, the lowest price since 1992. Bank of America fell to $11.47, its lowest share price since 1995. J.P. Morgan Chase fell to $22.72, its lowest price since 2002.

Citigroup's stock price has little direct, short-term impact on the company. The concern, however, is that Citigroup's customers and business partners will accept the stock market's judgment about the company's health and will begin to withdraw and withhold money from the bank. A similar process has driven other banks to the point of collapse, including Washington Mutual, Wachovia and National City.

The declining stock price also limits the company's ability to raise money by issuing shares, or to buy other companies using shares. Citigroup had discussed buying Chevy Chase Bank of Bethesda but no longer appears able to close the deal, according to people familiar with the situation.