The Down Low on Citi's Asset Quality

TURNS OUT the best way for Prince Alwaleed bin Talal to boost his stake in Citigroup to 5% would simply have been to sell his 4% stake after Wednesday's 23% rout and buy it back following Thursday's 26% stoning. Of course, he still would be down 19% today.

Banking is a confidence business as we've seen, and several other venerable firms that claimed "rumor mongers" were their main problem are already pushing daisies. To paraphrase Bill Parcells, you are what your share price says you are. And Citi's says that only Saudi royalty can still believe in its promises of an eventual return to glory days.

Since Citigroup is still playing three-card monte with its assets -- absorbing an SIV here, abandoning mark-to-market accounting there -- the share price remains the most useful indicator of its survival odds, since this week's spiral has made the inevitable further capital injections that much more onerous, while dramatically shrinking Citi's leverage in any merger talks.

The share price is like a ticking time bomb, warning off current shareholders and prospective buyers while encouraging key trading partners to consider their exposure to the firm. There probably won't be any earnings next year, and who thinks Citi will be the big winner in the changed world of 2010 and beyond?

As of Sept. 30, Citigroup had $2.05 trillion in assets and $1.92 trillion in liabilities on its balance sheet. Given what's taken place in the equity and credit markets since, would anyone want to bet that there's still net value there to prop up common equity? If so, another fantastic discount beckons.