NEW YORK (Reuters) - Citigroup Inc lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor. The second-largest U.S. bank by assets is looking at options now, including a sale of parts of the company or a merger with another firm, after its stock fell 50 percent this week, a person familiar with the matter said on Thursday.Discussions so far have been internal, and some options --such as entering into a merger where other executives end up running the company -- are unpalatable to managers at Citigroup, the person said. The bank's board of directors is set to meet on Friday, and Morgan Stanley is not considering a possible bid, the Wall Street Journal reported.
Citigroup did not comment on the report, repeating that it has a "very strong capital and liquidity position" and is focused on a strategy that will generate benefits "over time." Morgan Stanley did not immediately return a call for comment.
Earlier Thursday, Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup to 5 percent from less than 4 percent, calling its shares "dramatically undervalued." Alwaleed expressed "full and complete support" for management, including Pandit, who said this week the bank will slash 52,000 jobs and 20 percent of expenses.
Investors were unimpressed, and drove the bank's shares below $5, a level not seen since 1994. The market value of Citigroup has fallen $48.7 billion this month alone.
Citigroup is not seeking any government financial aid, and is not seeing any unusual business activity, a person close to the bank said. But government aid may have to be part of any deal for Citigroup, investors said. Raising capital, whether through a share sale or selling businesses, would be difficult in the current environment.
Citigroup "will get bailed out, and that's another unfortunate strain on the U.S. government," said Saj Karim, an investment adviser at Cannacord Capital in Waterloo, Ontario. The government may look to augment the $25 billion it injected last month from a $700 billion industry rescue package. The bank has raised another $50 billion since the middle of 2007.
Analysts said the bank could face more than $20 billion in losses in 2009 on commercial real estate, credit cards and emerging markets, as the world economy sinks into recession.