Demise of Citigroup?

A $2 trillion bank being allowed to fail? Seems impossible to contemplate. But analysts are beginning to think the unthinkable: the possible demise of Citigroup. The bank's share price is down to $3.5, its market cap of $20 bn is less than its wage bill. How much longer before it goes bust?

Right now, Citi is waging a grim battle for survival. Losses for the year came to around $ 19 bn, taking total crisis losses to a staggering $100 bn, almost the size of ICICI Bank's balance sheet. Last week, it sold a 51% stake in Smith Barney, its brokerage arm, to Morgan Stanley.

It has announced that the company will be split into two separate companies, one housing sound assets of approximately $ 1.1 trillion and another housing bad assets of $850 bn. The idea is to reassure investors about the viability of the core part of the bank. The bad part is to be eventually sold off. The key word is "eventually". Until buyers are found- difficult until as long as the crisis drags on- the bad part will continue to bleed the bank.

A new chairman will be in place soon, according to media reports. CEO Vikram Pandit may make way for a seasoned commercial banker.

Does this add up to a rescue plan? Not by a long chalk. With problems spreading to the real sector, it is a moot question whether the good part of the bank will remain insulated from problems for long. Capital raising is next to impossible- more capital can come only from the governemnt, which has already given $45 bn in addition to guarantees.

If Citi cannot convince the market that it can soon be viable, the last option would be nationalisation. But will the government be willing to pour more capital into a bank that does not hold out the promise of a quick revival?

The prospects look very bleak indeed. Unless buyers emerge for a big chunk of the bad assets and the US economy turns around more quickly than most people expect, the odds are against Citi surviving.