Embattled Citigroup in talks with US

Parties explore options in tense meetings, calls

Citigroup officials say it has adequate capital to ride out the crisis, but its tumbling stock may spook clients and rating agencies. (Jin Lee/Bloomberg News)

NEW YORK - With the sharp stock market decline for Citigroup rapidly becoming a full-blown crisis of confidence, the company's executives entered into talks with federal officials yesterday about how to stabilize the struggling financial giant.

In tense meetings and telephone calls, the executives and officials weighed several options, including whether to replace Citigroup's leadership or sell all or part of the company. Other options discussed included having the government try to steady Citigroup with a public endorsement or a new financial lifeline, people involved in the talks said.

The course of action, however, remained uncertain last night, these people said, and other plans may yet emerge.

But after a year of gaping losses and an accelerating decline in its stock price, Citigroup, which has $2 trillion in assets and operations in scores of countries, is running out of time, analysts said.

After a board meeting early yesterday, Citigroup's management and some board members held several calls with Treasury Secretary Henry M. Paulson and with the president of the Federal Reserve Bank of New York, Timothy L. Geithner, who hours later emerged as President-elect Barack Obama's choice to become the next Treasury secretary.

As Citigroup's stock sank, falling 94 cents to $3.77, the Fed was carefully monitoring how much money corporations and other customers were withdrawing from the bank, people involved in the discussions said. The Fed was trying to ascertain whether the tumult in the stock market could escalate into something worse.

So far, however, these people said, most customers and clients remained committed to Citigroup.

But with Citigroup's troubles opening a new chapter in the long-running financial crisis, government officials said the Treasury was considering whether to ask for the second half of the $700 billion rescue fund approved by Congress in September.

It was unclear whether any of that money would be used make a cash infusion into Citigroup, which received $25 billion from the government in October. A second financial rescue for banks might be difficult politically at a time the struggling auto industry is being turned away in Washington.

As Citigroup's fortunes diminished yesterday, the company's embattled chief executive, Vikram S. Pandit, went on the offensive. He worked the phones and held a companywide call to shore up the confidence of anxious employees.

Later in the day, the company held a similar call with large corporate customers. Tomorrow, Citigroup plans to run full-page advertisements in major metropolitan newspapers.

Among the ideas being bandied about Washington and the halls of Citigroup would be an assisted merger between Citigroup and another major bank. The merger might be structured with government assistance based on the blueprint that was developed for the Wachovia and Citigroup merger.