Citigroup Shares Drop as CEO Plans to Keep Smith Barney

NEW YORK (Reuters)- Citigroup Inc shares tumbled for a fifth straight day, as ChiefExecutive Vikram Pandit tried to downplay speculation the banking giantmight sell major businesses to restore its health and investorconfidence.

Pandit told employees on Friday that Citigroup, the second-largestU.S. bank by assets, does not want to change its business model andplans to keep its Smith Barney brokerage, according to two people whoheard him.

He also said Citigroup had a solid capital position, and thatemployees should not focus on the bank’s falling share price becausethat is not what regulators and credit rating agencies worry about, thesources said.

In late-morning trading, the shares were down 85 cents, or 18percent, at $3.86, after earlier tumbling as much as 24 percent to$3.58. They closed at $9.52 a week ago.

The cost to protect Citigroup debt against default rose, suggesting that fixed-income investors see increased risk.

"It’s fear and panic at this point," said Gerard Cassidy, a bankinganalyst at RBC Capital Markets in Portland, Maine. "Investors have seensimilar movies this year, and the endings are very unpleasant."

Citigroup is looking at options including a sale of parts of thecompany, or a merger with another company, a person familiar with thematter said on Thursday.

Concerns are rising that the drumbeat of negative news about Citigroup could prompt customers or trading partners to flee.

"We worry if the lack of investor confidence leads to (a) lack ofcustomer confidence," wrote Barclays Capital analyst Jason Goldberg."We believe the market may be implying some sort of regulatoryintervention."

Within the last three months, major U.S. lenders Wachovia Corp andWashington Mutual Inc suffered rapid outflows of deposits, as lossesmounted on mortgages and other debt. Wachovia later agreed to be boughtby Wells Fargo & Co, while Washington Mutual failed and its assetswere bought by JPMorgan Chase & Co.

Earlier this week, Pandit set plans to shed 52,000 of Citigroup’s352,000 jobs by early 2009, and to move tens of billions of dollars introubled securities onto its balance sheet.

The bank is also pushing the U.S. Securities and Exchange Commissionto reinstitute a temporary ban on short sales of financial stocks, aperson familiar with the matter said.

The cost to protect its debt was $470,000 annually to protect $10million of debt against default for five years, up from $395,000annually on Thursday, according to Phoenix Partners Group. Banks inextreme distress that were eventually taken over by regulators had muchhigher credit default protection levels, signaling that credit marketsforesee either a dilutive capital raise for Citigroup, or governmentintervention that does not hurt bondholders.

On Thursday, Saudi Prince Alwaleed bin Talal said he planned toincrease his stake in Citigroup to 5 percent from less than 4 percent.The bank’s largest individual investor called Citigroup’s shares"dramatically undervalued."

Citigroup’s market value was $25.7 billion as of Thursday’s close,down $48.7 billion this month, and down about a quarter trilliondollars since late 2006.

Thursday’s market value was barely above the $25 billion thatCitigroup received as part of the government’s $700 billion financialindustry rescue package. Citigroup said it has also raised another $50billion of capital from other investors since the middle of 2007.

(Reporting by Jonathan Stempel and Dan Wilchins; Additional reporting by Joseph Giannone; editing by Jeffrey Benkoe)