Shares in Citigroup (C) fell to close to $1 during the Latin American loan crisis in the 1970s. During the market difficulties beginning in 1987, the stock fell from $4.50 to $1.40 in 1990. The shares also lost more than half of their value during the market turmoil in late 1998.

But, each time Citi recovered. It may be hard to believe, but the bank’s shares hit an all-time high less than a year ago. They have now fallen about 50% to about $30, and, based on the strong possibility of more big write-offs, they could drop by half again to $15.

Citi began to get out in front of its problems yesterday. Instead of the future making the big bank, perhaps it is now ready to make its own future, at least within the confines of the markets and its own balance sheet.

The bank took on obligations for $47 billion worth of its affiliated SIVs. That will damage the bank’s capital base. Moody’s, already concerned about the company’s future, cuts its bond rating to Aa3, down a notch. "The bank will probably “take sizable writedowns” for securities backed by home mortgages and collateralized debt obligations, Moody’s Senior Vice President Sean Jones told Bloomberg.

Depending on which analyst Wall St. listens to, Citi could have another $10 billion in write-downs in the fourth quarter. David Hendler of CreditSights says it could take the bank two to five years to repair the damage to its balance sheet.

Investors may argue that if Citi shares get cheap enough another large bank like JP Morgan (JPM) may take them over. But, JPM is doing well now. It would be foolish to take on a repair job as tremendous as the one at Citigroup.

Citi may sell of some of its crowned jewels. It retail brokerage and wealth management businesses could be worth as much as $25 billion. Its investment bank could be worth even more.

The bank could also go to a group of sovereign government funds and raise money, as it has already done once. And, the Fed is already making moves to help money center banks. The help may increase in the form of low interest loans for financial institutions which need them. At Treasury, Paulson was willing to help build a "Super Fund" for SIVs. He activism on the part of banks is probably not over.

But, the board and new management are not wasting any time. They have started to begin to reshape the bank less than a week after finding a new CEO. Certainly the board has a big hand it this. The company got into trouble on their watch and they need to see it get out while most of them are still sitting board members.

Wall St. can’t make light of Citi’s troubles, but under Chuck Prince the company appeared unwilling to do anything to make itself better off.

Getting "better off" is already beginning at the big bank.

Douglas A. McIntyre

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