Citigroup stock drops to 13-year low, fear grows

Citigroup Inc faced a crisis of confidence on Wednesday as investors questioned the survival prospects of the U.S. banking giant, and its shares tumbled 23 percent to a 13-year low.
The second-largest U.S. bank by assets has been reeling on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and add deposits. Last month, Wells Fargo & Co dealt a blow by derailing Citigroup's bid to buy Wachovia Corp.
Citigroup shares closed down $1.96 at $6.40 on the New York Stock Exchange and have fallen 33 percent this week as some investors concluded that Chief Executive Vikram Pandit's plan to shed 52,000 jobs and cut expenses by one-fifth won't restore the bank to health.
"People are looking at their business model and wondering how on earth they're going to be able to survive," said William Larkin, a fixed-income manager at Cabot Money management in Salem, Massachusetts.
Citigroup said in a statement it has a strong capital and liquidity position, and is focused on executing its strategy, which it believes will pay off over time.
Earlier Wednesday, Citigroup agreed to buy $17.4 billion in assets remaining in some funds known as structured investment vehicles. The SIVs were among the earlier investments to implode when the global credit crunch began last year.
While shares of the New York-based bank are down 78 percent this year, trading Wednesday brought new urgency as investors viewed the bank's prospects in terms of other companies that either failed or went to the brink.
Worries about Citigroup were a key factor in U.S. stocks falling broadly Wednesday to a 5-1/2-year low.
"The whole thing echoes quite frankly of Bear Stearns," said David Dietze, chief investment officer of Point View Financial Services in Summit, New Jersey.
Bear Stearns narrowly avoided failure this year when JPMorgan Chase & Co bought the investment bank in a government-backed sale. "(The Bear problems) all started with them liquidating hedge funds," Dietze said. "It's quite an eerie echo."
William Smith, a portfolio manager at Smith Asset Management, referred to insurer American International Group Inc, which got a $152 billion government bailout. "It's simple. Break it up before it turns into another AIG," he said about Citigroup, which operates in more than 100 countries.
The U.S. Treasury Department declined to comment, citing its policy of not discussing individual companies.
Regulators have shown a willingness this year to intervene when banks appeared to struggle. They pushed Wachovia Corp into finding a buyer and arranged for JPMorgan to buy Washington Mutual Inc's banking assets after worried customers began to yank deposits.
"If the government stepped in, they would rescue the senior bondholders and probably the subordinated holders too, but equity is far less likely to be saved," said Sean Egan, principal of Egan-Jones Ratings Co in Haverford, Pennsylvania.