- The Washington Times - Saturday, November 22, 2008

NEW YORK | Citigroup Inc. will probably get rescued by the U.S. government after a crisis of confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc., which got U.S. support this year. Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

Although Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating agencies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.

“The market may be implying some sort of regulatory intervention,” Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients. “In situations where the government has stepped in, the equity holders have not fared well.”

Citigroup CEO Vikram Pandit told employees Friday that he doesn’t plan to break up the company, aiming to reassure workers as the stock skid. Its shares dropped 94 cents, or 20 percent, to close at $3.77.

With a market value of $274 billion at the end of 2006, Citigroup was the biggest U.S. bank. Now, at about $21 billion, it’s No. 5 behind Minneapolis-based U.S. Bancorp.

Earlier this week Mr. Pandit announced a plan to cut costs by shedding 52,000 jobs, and billionaire Saudi investor Prince Alwaleed bin Talal increased his stake in the company. Neither assuaged shareholders’ concern that bad loans and securities write-downs may extend a yearlong run of net losses totaling $20 billion.

“To be consistent with the last few government interventions, I don’t think Citigroup’s going to be allowed to fail,” said William Fitzpatrick, an analyst at Optique Capital Management Inc. in Milwaukee. “This company’s too intertwined with the rest of the financial system to allow any further deterioration.”

Citigroup spokesman Michael Hanretta declined to comment. On the call Friday with employees, Mr. Pandit said the company’s capital and liquidity are strong.

Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program (TARP), the company has at least $50 billion of capital above the amount required by regulators to qualify as “well capitalized.”

“With Citi being as big as they are, the government will make a special case and step in and find another reason to dispose of more TARP funds,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

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