Citigroup Inc.Chief Executive Officer Vikram Pandittold employees he doesn't plan to break up the company, aiming to reassure workers as the stock resumed a skid that has erased more than half its value in three days.
Pandit and Chief Financial Officer Gary Crittenden, speaking on a worldwide conference call this morning, also said they don't expect to sell the Smith Barney brokerage unit, said two people who listened to the call and declined to be identified because it wasn't open to the public.
The call came as Citigroup's board, led by Chairman Win Bischoff and independent director Richard Parsons, prepared to meet today at the bank's headquarters in New York, said a person familiar with the company's plans who declined to be identified because the deliberations are private. Bischoff, interviewed at a conference in Portugal today, declined to comment on any potential changes to the board.
Citigroup shares dropped 74 cents, or 16 percent, to $3.96 as of 10:47 a.m. in New York, giving the company a stock market value close to $21 billion.
Once the biggest U.S. bank, with a market value of $274 billion at the end of 2006, Citigroup has now slipped to No. 5 after Minneapolis-based U.S. Bancorp. A plan Pandit announced this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn't assuage shareholders' concern that bad loans and securities writedowns may extend a yearlong run of net losses totaling $20 billion.
`Dead Bodies'
``Investors right now aren't convinced that we're done seeing dead bodies on the Citigroup balance sheet,'' said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn't own Citigroup shares. ``That's what the sell-off is, concern over more and more losses over the next couple of quarters.''
Citigroup spokeswoman Christina Pretto declined to comment on the board meeting. She reiterated a statement made by the New York-based company earlier this week that it has ``a very strong capital and liquidity position and a unique global franchise.''
Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital in excess of the amount required by regulators to qualify as ``well capitalized.'' Capital is the cushion banks must keep to absorb losses and protect depositors.
`Throwing in the Towel'
``Why would you want to sell if you know you can live through the crisis?'' said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. ``If I were Vikram, I'd probably turn to the board and say, `Let's wait until January and see if the pressure comes off.'''
The company's shares fell 26 percent in New York trading yesterday to close below $5 for the first time since 1994.
``What you're seeing here is more emotional selling, more people throwing in the towel and they are throwing everything out, not just Citi,'' said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn't own Citigroup stock or debt.
Pandit, 51, has pledged to preserve Citigroup's strategy of combining a wide range of financial businesses in a single company. They include branch banking, retail brokerage, trading, investment banking, credit cards and transaction processing.
Deposits Are Safe
Pandit was appointed last December to succeed Charles O. ``Chuck'' Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford ``Sandy'' Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.
Bischoff, 67, was Citigroup's top executive in Europe until he was named chairman when Pandit became CEO.
Bank employees have been telling customers their deposits are safe, and so far corporate clients haven't moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren't authorized to speak publicly about the accounts.
Chief Financial Officer Gary Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.
`Non-Core' Units
The bank may try to sell ``non-core'' units, similar to the divestiture earlier this year of retail-banking operations in Germany and Citi Global Services Ltd., an Indian unit that processes transactions and provides other ``back-office'' services, Optique's Fitzpatrick said.
``They're still going to stick with the game plan of selling off non-coreassets, but I don't know what you can sell in an environment like this,'' he said.
Morgan Stanley isn't in talks about a merger with Citigroup, according to a person at the New York-based investment bank who declined to be identified because the company doesn't comment publicly on potential deals. Morgan Stanley, which was the second biggest U.S. securities firm before converting to the fifth- biggest U.S. bank by assets in September, has said it plans to build its retail banking business and its brokerage division, which competes with Citigroup's Smith Barney.
Citigroup executives who spoke on condition of anonymity because they weren't authorized to comment publicly said they felt besieged by negative rumors propagated by short sellers betting on a decline in the share price.
Talks With SEC
Bank officials have discussed with the U.S. Securities and Exchange Commission and lawmakers the prospect of reviving a prohibition on short-selling financial stocks, according to a person familiar with the matter.
Few investors are willing to bet on the stock's recovery, said Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut.
``The problem is credibility,'' Birinyi said in a Bloomberg Television interview yesterday. ``There seems to be no bottom.''
Costs for bad loans have almost doubled in the past year to $9.07 billion in the third quarter, and Pandit told employees this week that net credit losses in the banks' consumer divisions may be as much as $2 billion per quarter next year. The cost cuts announced this week may save about $2 billion per quarter.
Government Intervention?
Citigroup is so integral to the global financial infrastructure that the U.S. government is unlikely to let the bank collapse, said Barry James, president of James Investment Research Inc., which manages $1.75 billion in Xenia, Ohio. He doesn't own Citigroup shares.
While the bank's debt holders may be spared, shareholders likely won't fare as well, Bahl & Gaynor's McCormick said.
``If I was a Citi shareholder, I would expect to see increased volatility, more government stimuli and a possible merger or acquisition,'' McCormick said. Any government aid would be dilutive to stockholders, he said.
Pandit and three deputies who bought about 1.3 million Citigroup shares last week in a show of confidence already are sitting on paper losses. Pandit bought 750,000 shares at an average price of $9.25 apiece. At yesterday's closing price, they're worth about $3.41 million less.
Parsons, the 60-year-old lead director and chairman of Time Warner Inc., bought 35,000 shares this week for an average price of $8.15, Citigroup said yesterday in a regulatory filing.
The stock ``is for speculative investors,'' McCormick said. ``Let's face it.''
