For Citigroup and its embattled leader, Vikram S. Pandit, the terrible ifs are accumulating.
Vikram S. Pandit assured Citigroup employees that the bank would weather the financial storm.
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Word that Mr. Pandit would try to salvage his troubled bank by cleaving it in two was greeted Wednesday with stunned disbelief on Wall Street.
Rather than calming skittish investors, the plan stoked fears that Citigroup — and indeed the broader financial industry — was entering a perilous new phase in the financial crisis.
Mr. Pandit wants to sell a range of unprofitable businesses and troublesome assets, including some with roots in subprime lending. But investors wonder whether other financial companies will have the will or the means to buy them.
Like Citigroup, other banks need more money to withstand yet another looming wave of red ink. Bank of America was negotiating on Wednesday for a second multibillion-dollar round of federal aid.
The growing unease over the industry was evident in the stock market, where Citigroup led a sharp decline in financial shares that helped shave 248 points, or nearly 3 percent, off the Dow Jones industrial average. Shares in Citigroup sank $1.37, to $4.53, slipping below $5 for the first time since late November, when it was compelled to grab a second lifeline from the government.
Now Citigroup is in a tightening bind. With the economy struggling, many lenders are bracing for a surge in losses stemming from credit cards and commercial real estate. Few banks are prepared to buy what Citigroup hopes to sell.
“You can count on a few fingers who could be those buyers, and what they are willing to pay at a time like this,” said Glenn Schorr, a banking analyst at UBS. “It’s really tough.”
For Mr. Pandit, time is growing short. Despite two federal rescues, Citigroup is expected to report a fourth-quarter operating loss of at least $10 billion on Friday. More losses are likely to follow.
While Mr. Pandit has the public support of his board, some on Wall Street wonder how long he can hold on. If he fails to find buyers, the government ultimately might be forced to come to Citigroup’s aid a third time, although Citigroup insiders say there are no plans to seek additional capital from Washington.
Still, regulators are pushing Citigroup to make changes. They are urging the company to replace its chairman and shake up its fractured board, which met on Wednesday afternoon to review earnings and discuss Mr. Pandit’s plan for the first time. News of its contents seeped out before Mr. Pandit had a chance to walk the directors through the details, according to a person close to the situation.
In a memo on Wednesday, Mr. Pandit assured employees that Citigroup would weather the storm.
“The economic model of our business is sound and it positions the company for success over the long term,” Mr. Pandit said in the memo. “We are and will remain a bank.”
He added that the clarity of the new strategy “should address the psychology of the market.”
Mr. Pandit is aiming to shrink Citigroup by a third to help stanch its losses and make the company easier to manage. On Tuesday, Citigroup announced that it would shift its prized Smith Barney brokerage into a joint venture with Morgan Stanley, a deal that ultimately could result in a sale.
But finding takers for the $600 billion worth of businesses that Citigroup hopes to shed may not be easy, particularly given the running turmoil in the financial industry.
For instance, Citigroup is looking to sell its private-label credit card operations at a time when many consumers, particularly those with weak credit, are struggling to pay their bills. The card business lends on behalf of retailers like Sears and Home Depot, often to people with low credit scores.
General Electric gave up trying to sell its $30 billion private-label credit card business in September after failing to find a buyer. Since then, the economy and consumer spending have deteriorated sharply, which makes Citigroup’s task of finding a buyer even harder.
Other Citigroup businesses could also be tough to sell. CitiFinancial caters to lower-income borrowers, a market few banks are eager to court. And Primerica Financial Services, Citigroup’s remaining insurance operation, has been on and off the auction block for two years, according to executives with knowledge of the situation.
And then there are the $306 billion of illiquid assets, most of which are backed by the government. Investors say it could take years for Citigroup to dispose of them.
Joshua S. Siegel, managing principal at StoneCastle Partners, an asset management firm specializing in bank investments, said there were few buyers for the assets that Citigroup would probably have to sell at rock-bottom prices. “You would record billions and billions of additional losses if you were forced to sell,” Mr. Siegel said.
Some analysts say they doubt Mr. Pandit can execute his plan without more help from the government in the form of direct investment or purchases of troubled assets.
Joshua R. Rosner, an analyst at Graham Fisher & Company, said it would be “incredibly difficult or impossible” for Citigroup to sell businesses at this time. The government, he said, may have little choice but to step in a third time.
