Citi: That Sinking Feeling

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, the breakup of Citi into several separate, more manageable or saleable businesses," she wrote. That could be accomplished along any number of lines, possibly by splitting off the retail bank, the insurance unit, the global assets, and the corporate finance and investment bank. Some investors have openly called for the ouster of Citi CEO Charles Prince III.

If Citi decides to raise capital by selling assets, it probably will have to part with higher quality businesses such as real estate and credit cards. That's because the market for riskier assets has all but dried up, according to Whitney. Moreover, the need to sell assets to raise capital could limit Citi's ability to grow over the longer term, she notes.

Decline and Growth

Analysts and investors will anxiously await the results of the fourth quarter, which will be released in January. Some expect that the company could be forced to take an additional writedown in the range of $1 billion (BusinessWeek.com, 11/1/07), to fully reflect the decline in the value of its fixed-income investments. Investors already are worried the problems in the credit market could become systemic and bring down a major financial institution (BusinessWeek.com, 10/26/07).

Of course, it's possible that Citi could try to rebuild its capital levels by relying on organic growth. But that would take a long time. Whitney estimates that it would take seven quarters, or nearly two years, to rebuild its tangible equity and asset ratios to 4.5%, a level "close" to the industry average.

If the company is forced to make loans to support its troubled investment pools, known as structured investment vehicles (BusinessWeek.com, 9/10/07), the process could take even longer, she warns. Either way, it's a good bet most investors aren't willing to sit around waiting for that to happen.

Rosenbush is a senior writer for BusinessWeek.com in New York.