Citigroup attempts to reassure on stability

Citigroup was last night lobbying US regulators to reinstate their emergency ban on short selling, amid a continuing tailspin in the company's share price.

The US banking giant has also instructed its traders, fund managers and executives to reassure clients that it is financially sound, as it fights to maintain confidence in its prospects.

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The Securities and Exchange Commission banned short selling of financial stocks at the peak of the market panic in September, but the rule lapsed last month. Short selling is a bet against a company's share price, and many blame the practice for driving down stocks and triggering crises of confidence.

With the stock price plunging for a third day and the cost of insuring Citigroup's debt soaring, executives argued a temporary ban could restore order. Citigroup shares fell 26.4 per cent.

Analysts have begun questioning whether the company has enough money to absorb a new round of losses on the credit markets. Their fears overwhelmed news that Saudi Prince Alwaleed bin Talal, one of Citigroup's largest shareholders, was increasing his stake from below 4 per cent to at least 5 per cent, in a public vote of confidence.

From Vikram Pandit, chief executive, downwards, the company mobilised for a public relations offensive and pointed to the efforts that Citigroup has made to shore up its finances. "We are entering 2009 in an even stronger position than we entered 2008," Mr Pandit said. "Our capital base and liquidity are even stronger, our expenses are down significantly, we have reduced our risky legacy assets, and our long-term operating earnings power is tremendous."

Traders and fund managers have been instructed on how to deal with clients who raise questions about the company's finances, amid the increasingly nervous atmosphere on Wall Street.

Citigroup was given $25bn (£16.9bn) from the US government under the Wall Street bailout plan. New debt it issues now comes with a federal guarantee. The company has also been selling assets to slim down its balance sheet, and this week said it would lay off 52,000 staff around the world, affecting 15 per cent of them.

Analysts said Citigroup may have to raise more money if it faces another round of losses on mortgage investments, having already suffered four consecutive quarters of losses on sub-prime home mortgages.

Prince Alwaleed's stakebuilding was designed as a powerful vote of confidence from a man whose initial investment in 1990 came at the depths of the last major US financial crisis, the savings and loan debacle.