What investors are worried about is that all the risky debt sitting on Citigroup's balance sheet will eventually turn into losses as the economy worsens and the markets stay turbulent - losses that could be nearly impossible to reverse.
Investors were also fearful that the government might orchestrate a takeover of Citigroup over the weekend that could wipe out common shareholders, said Paul Miller, a Friedman Billings Ramsey banking analyst.
The government was instrumental in JPMorgan Chase & Co.'s buyout of Bear Stearns and Washington Mutual Inc., deals that left shareholders with little or no payouts.
Government officials, who spoke on condition of anonymity because of the sensitive nature of the matter, said the Treasury Department is monitoring the situation, as are banking regulators.
Concerns about the solvency of financial institutions were starting to ebb after the downfall earlier in the year of Bear Stearns Cos., Lehman Brothers Holdings Inc., and American International Group Inc. But now they are back with a vengeance as the recession deepens, raising the prospects of more big loan losses.
Citigroup is considered the most vulnerable among the major U.S. banks, failing to turn a profit in the past four quarters when rivals such as New York-based JPMorgan Chase & Co. and Charlotte, N.C.-based Bank of America Corp. managed to do so.
Citigroup's shares tumbled as low as $3.05 a share Friday before recovering to close at $3.77 a share, a decline of 20 percent that left them at their lowest level in nearly 16 years. It was a continuation of a sharp, weeklong plunge that could not be stemmed by Saudi investor Prince Alwaleed bin Talal's decision Thursday to raise his stake in the company to 5 percent from less than 4 percent.
The shares have shed 60 percent of their value since last Friday.
Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.
Raising more money on the open market is "pretty much off the table," given the recent plunge in the bank's shares, said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. And raising more cash from outside investors or the government would be "a Band-Aid."
"You're going to have to see more sizable divestitures," Fitzpatrick said. "They're going to have to make changes here, and they don't have time on their side anymore."
People familiar with CEO Pandit's call Friday morning with senior managers, who spoke anonymously because the comments during the call were not made public, said his message was similar to that at his town hall meeting with employees on Monday - that Citigroup has adequate capital, and that he supports the universal bank model for Citigroup, including arms such as Smith Barney.
On Monday, Pandit said the universal banking model is "the right model," and that Citigroup's strategy is "to be the world's truly global universal bank."
Still, one person said, "it's clear everything is on the table. That wasn't explicit, but I think it's clear."
An outright sale shouldn't be ruled out, but it appears unlikely, said Alois Pirker, an analyst at financial services research firm Aite Group. Not only are there few potential buyers right now, but "firms prefer to cherry pick," he said. "If you don't have a well integrated shop, the benefit of taking over the whole versus pieces diminishes."
Pirker said sale opportunities include Citi's Global Transaction Services business and its brokerage, Smith Barney. Pandit has said that these two businesses are important to Citigroup - but these two franchises are not core to retail banking and would be attractive to potential buyers, Pirker said, because they have performed well in the recent turbulent environment.
Selling off the businesses in a particular region is another option, Pirker said. Recently, Citigroup sold off its retail banking business in Germany - it could do the same with Japan, for example, he said.
Citigroup could also consider a merger rather than an outright sale.
"A merger is indeed a possibility at this point," Fitzpatrick said. He said there are a number of firms that would be eager to take over some of Citigroup's businesses - particularly a company like Goldman Sachs Group Inc., an investment bank that recently turned into a bank holding company and is now on the prowl for deposits.
The bank has been rushing to get leaner and wind down its assets backed by risky debt. Monday, Citigroup said it will cut 53,000 jobs, on top of 22,000 cuts previously announced. On Wednesday, the bank said it is acquiring the remaining $17.4 billion in assets held by complex debt products known as structured investment vehicles that it previously ran off its balance sheet.
The subprime residential mortgage crisis has swelled into a full-blown debt crisis for not just Citigroup, but other banks as well, leading to defaults in everything from leveraged loans to credit card debt to commercial real estate loans.
Even JPMorgan Chase, one of the nation's stronger large banks, is shedding about 10 percent of its investment bank staff to better navigate the tough climate.
On Monday, Citigroup's Pandit said the company's consumer portfolio losses could rise between $1 billion and $2 billion each quarter through mid-2009. With Citigroup reporting net credit losses of $4.9 billion during the 2008 third quarter, the forecast means losses could swell to more than $10 billion by the middle of next year.
Pandit also said at the time that Citigroup plans to move $80 billion worth of marked-down assets on its balance sheet into a held for investment, held to maturity or available for sale category - instead of listing them on their trading portfolio. Pandit said the accounting change "allows us to benefit from the inherent upside from these marked-down assets," but some investors saw the move as a tactic to hide bad assets, Fitzpatrick said.
Citi is "a great franchise, but it's damaged right now," Fitzpatrick said. "No one knows what the ultimate losses are going to be on a $2 trillion balance sheet."
Deutsche Bank's Mike Mayo estimated in a note Thursday that Citi will probably have to take an additional $7 billion to $20 billion in markdowns on its investments in the capital markets.
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AP Economics Writer Jeannine Aversa and AP Business Writer Marcy Gordon contributed to this report from Washington.
