Citigroup stock may stay in or near single digits

NEW YORK (Reuters) - Citigroup Inc may at some point right itself, but its single-digit share price reflects what investors deem reality: it may not be soon.

The bank's shares fell this week below $9, touching a 13-year low, as fears mounted about how a deep recession would hurt corporate America, and especially lenders. Citigroup shares are down more than 80 percent in less than two years.

The credit crisis has hit Citigroup harder than rivals Bank of America Corp and JPMorgan Chase & Co. Citigroup had already lost $20.3 billion in the last year and analysts expect a fifth straight quarterly loss in the October to December period. Some expect no profit before 2010.

Chief Executive Vikram Pandit, in just 11 months on the job, has slashed the bank's dividend twice and cut 23,000 employees. He was able to shore up capital with $25 billion from the government's $700 billion bank bailout plan, on top of more than $40 billion obtained in late 2007 and early 2008.

But there is a growing sense that, even if Citigroup is too big to fail, nothing can soon lift it from a malaise. Some investors now even hold its vaunted geographic diversification, with operations in more than 100 countries, against it.

"While people once thought Citigroup was somewhat insulated from U.S. shocks because of its global exposure, it now has vulnerability because of that same global exposure," said Marshall Front, president of Front Barnett Associates LLC in Chicago. "What was once viewed a positive is now a negative."

NOT ALONE

Investors and traders said the bank and its rivals are now under renewed pressure following U.S. Treasury Secretary Henry Paulson's announcement he was abandoning the original purpose of the $700 billion bailout, to buy bad assets.

This means banks with those assets would have to absorb more losses if, as widely expected, housing prices and consumer credit keep deteriorating. The KBW Bank Index of large lenders fell on Thursday to its own 12-year low.

"Nobody knows what the exposure is; it's a snowball effect," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. "Citibank broke $10 and it's a psychological level."

Citigroup stock traded as high as $56.66 as recently as December 2006. Its record high was $59.13, set in August 2000. The bank's market value is now close to that of U.S. Bancorp, which has one-eighth as many assets.

Last month, Citigroup Chief Financial Officer Gary Crittenden said credit card losses could soon "exceed their historical peaks" and warned of credit deterioration in major foreign markets, such as Brazil, India and Mexico.

Citigroup last month suffered a major setback at home when Wells Fargo & Co trumped its plan to buy much of Wachovia Corp with a better offer.

Citigroup is seeking $60 billion of damages because its merger fell apart. Regardless of whether it succeeds, it now has few game-changing U.S. acquisitions it could make to add the deposits that banks now crave.

According to the Wall Street Journal, Citigroup is one of a number of bidders to buy Chevy Chase Bank, a Bethesda, Maryland lender. But Chevy Chase has a mere $11.4 billion of deposits, a drop in the bucket next to Wachovia's $418.8 billion. Citigroup said it ended September with $277.1 billion of U.S. deposits.

The newspaper also said Citigroup executives are restless and that to assert greater oversight over Pandit and his lieutenants, directors might try to supplant Sir Win Bischoff as chairman. Richard Parsons, the former Time Warner Inc chairman, could replace Bischoff, it said.

Citigroup's board said in a statement that it fully supports Bischoff, labeling the newspaper report "completely erroneous." Parsons, speaking on CNBC television, later said "We've got the right management on the field."

The bank declined to comment on Chevy Chase.

ABSENTEE CEO

Since replacing Charles Prince as chief executive, Pandit has restructured top management and once powerful executives such as former investment banking chief Michael Klein and former wealth management chief Sallie Krawcheck have departed.

Pandit has also begun a program to improve Citigroup's technology infrastructure, widely regarded as something Sanford "Sandy" Weill neglected when he ran the bank.

He has also started a plan to shed $400 billion of assets and his efforts have already caused Citigroup to fall behind JPMorgan in asset size. Bank of America would pass both when it finishes buying Merrill Lynch & Co Inc.

But many of the benefits from these efforts might not surface for months or years. Moreover, Pandit's strategy recalls Prince's, which also emphasized the breaking down of business silos and keeping costs down.

"I don't see Citi making any money over the course of the next couple of years," said Meredith Whitney, the Oppenheimer & Co analyst who a year ago anticipated Citigroup's need for new capital and a dividend cut.

"They will have capital pressures from losing money," she continued. "They will have capital pressures from resizing the businesses. What Citi and others are going to continue to do is sell assets to raise capital. And we are in a material asset deflationary environment. So that's equally dilutive."

Whitney spoke Monday at the Reuters Global Finance Summit.

Citigroup stock trades at roughly half its book value as of September 30 and Front called it "absolutely" cheap. He said it's one of a "package" of bank stocks he owns and can rebound "as we move through and beyond this credit crisis."

But he expects more from Pandit.

"Other CEOs, at critical junctures, will say something about their companies' prospects, strategy and future," Front said. "He's largely absent."

(Additional reporting by Deepa Seetharaman, Ryan Vlastelica and Dan Wilchins; Editing by Andre Grenon)