Wall Street to Citigroup: Come clean

Citi: 'Clearly unacceptable'

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NEW YORK (CNNMoney.com) -- Despite Citigroup Inc.'s current troubles, many on Wall Street believe the bank is certainly down, but not for the count.

The Wall Street giant has been pummeled this week by investors and analysts alike after a large shareholder, Dubai International Capital, questioned its ability to survive without another major capital infusion. The stock is now trading at its lowest level in nearly a decade, and analysts are warning that more multi-billion writedowns are on the horizon.

Even after Dubai International backed off Thursday from its previous comments, saying it never expressed an opinion about Citigroup's (C, Fortune 500) financial condition, shares closed down nearly 4.5 percent at $21.17.

After the closing bell, Citigroup said it is overhauling its residential mortgage business, reducing assets by $45 billion, or 20%, and halving the amount of new loans to be held in portfolio in the next year. It is also tightening underwriting standards and eliminating some higher-risk offerings, such as adjustable-rate subprime mortgages that adjust after two or three years.

This week's turbulence has led some to wonder what lies ahead for the troubled titan and has renewed calls in some corners for a breakup.

While it's certainly true the bank is going through tough times right now, it's not teetering on the edge of collapse, analysts said. It has a strong global presence in growing markets, such as China. Also, its wealth management group, which was reorganized Monday, has contributed significantly to Citigroup's profit margins.

"The solvency of the company is not the question," said banking analyst Kris Niswander, associate director of research at SNL Financial in Charlottesville, Va. "Citigroup is a strong company."

Citigroup Chief Executive Vikram Pandit said as much in a memo to employees on Wednesday. He reiterated that the bank is financially sound but is reviewing its operations. A spokesman declined to comment beyond the memo.

Pandit's memo, however, did not ease investors' concerns about what steps the relatively inexperienced CEO will take next. Pandit took over in December after his predecessor Charles Prince stepped down because of huge losses from the bank's subprime portfolio.

"They have a perception problem," said Matt McCormick, bank analyst and portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "They will continue to face pressure until they clean up their act. Until they quantify the risk, I don't see a lot of people going in aggressively."

Shareholders want to know how Citigroup plans to use the $22 billion in cash infusions it received recently from sovereign wealth funds in Singapore, Kuwait and from other investors, Niswander said.

The credit crisis is far from over for Citigroup and its Wall Street peers. The bank is expected to suffer a big uptick in losses in its consumer division, particularly in its credit card portfolio, when it reports first-quarter earnings on April 18.

"They need to be more concise and clearly state going forward how they will be operating and how they will deploy the capital," he said.

Breaking up the bank isn't really an option, said Christopher Whalen, managing director of Institutional Risk Analytics in Torrence, Calif. Its institutional division needs the deposit base of the retail side to operate. Citigroup may be forced to put certain assets on the auction block, but it's not an ideal time to do so because they'll likely fail to command good prices.

And despite Pandit's assertion that the bank is well capitalized, analysts say the bank will need even more to handle the downturn in its consumer business.

"They have to raise more money to deal with the real credit losses coming down the pike," Whalen said.