Citi bailout adds to banks' credibility problem

Even survivors such as Goldman Sachs CEO Lloyd Blankfein and Morgan Stanley chief John Mack have offered rosy forecasts about the economy and financial markets that proved premature.

Michael Holland of New York money management firm Holland & Co said there are too many legal and regulatory penalties to think executives would willfully misstate their condition.

Even so, most investors said the market conditions have changed so rapidly, and deteriorated in such surprising ways, that executives cannot always be blamed for getting it wrong.

"The facts have been changing very rapidly in these institutions," Holland said. "When we get a comment from a CEO, we don't know what the markets will be like tomorrow."

Not that it makes investors, who have seen their stakes wiped out, feel any better as they look ahead.

Point View's Dietze observed it was only six weeks ago that the FDIC signed off on a proposed Citi takeover of Wachovia Corp, a struggling regional bank. Yet in that short period of time, Citi went from being a consolidator and rescuer to one of the rescued.

"If the government and the company missed it," Dietze said, "to what degree can we investors be assured they now have their arms around the problems?"

(Additional reporting by Jonathan Stempel and Dan Wilchins, editing by Matthew Lewis)