Citigroup shares tumble despite Alwaleed boost

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By Jon Stempel and Dan Wilchins

NEW YORK (Reuters) - CITIGROUP (C.NY)Inc's largest individual investor gave the troubled bank new support, saying he would boost his stake modestly, but failed to revive investor confidence as the bank's shares tumbled another 10 percent.

Saudi Prince Alwaleed bin Talal, who plans to increase his stake to 5 percent from less than 4 percent, said the bank's shares were "dramatically undervalued" following a nearly 90 percent plunge since late 2006.

He also expressed "full and complete support to Citi management," including embattled Chief Executive Vikram Pandit, who earlier this week announced a plan to cut 52,000 jobs.

But investors were unimpressed.

Peter Kenny, managing director at Knight Equity Markets, said that if Alwaleed "is upping his stake to 5 percent at the current valuation of the company, what does that mean?

"That he's spending less than $100 million? That's not very much. The fact he's bumping up to 5 percent actually underscores how pathetic the stock performance has been."

The cost of insuring Citigroup's debt also rose. Five-year credit default swaps on Citigroup rose to 395 basis points, meaning it costs $395,000 a year to protect $10 million of debt, according to data from Phoenix Partners Group. The swaps closed on Wednesday at 357 basis points, or $357,000 a year to protect $10 million of debt, according to Markit.

"Spreads are widening on pretty much everything," said Keith Davis, a bank analyst at Farr, Miller & Washington. "Given that backdrop, how much capital is Citi going to need to shore up their balance sheet? I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later."

In a statement, Alwaleed said he believes the shares are . Citigroup's market value was $34.9 billion on Wednesday, meaning that Alwaleed plans to invest at least $349 million, based on Wednesday's closing price.

He said the New York-based bank is "taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy."

Alwaleed added that he is "fully confident that Citigroup's universal banking model and global franchise will make it a long-term winner in the financial services industry."

The prince's percentage stake in the bank was reduced in late 2007 and early 2008 as Citigroup raised some $50 billion of capital from sovereign wealth funds and other investors, including Alwaleed, to shore up its balance sheet. It recently received another $25 billion under the U.S. government's bank bailout package.

Shares of Citigroup have fallen 80 percent this year. They lost one-third of their value in the first three days of this week as investors worried that Pandit's plan to cut expenses by 20 percent and eliminate 52,000 jobs won't restore the bank to health.

Citigroup has lost $20.3 billion in the last year and taken tens of billions of dollars of writedowns on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don't expect it to be profitable in 2009.

Pandit suffered a major setback last month when Wells Fargo & Co agreed to buy Wachovia Corp , trumping Citigroup's bid to buy much of the Charlotte, North Carolina-based bank and add its $418.8 billion of deposits.

(Additional reporting by Elinor Comlay, Jonathan Spicer and Kristina Cooke; writing by Christian Plumb; editing by John Wallace)

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