Sources: Government working on Citigroup rescue

WASHINGTON – The government was weighing a plan on Sunday to rescue Citigroup Inc., whose stock has been hammered on worries about its financial health.

The Treasury Department and the Federal Reserve have been in discussions over the weekend to devise a strategy to stabilize the company, according to people familiar with the talks. They spoke on condition of anonymity because the discussions were ongoing.

One option being considered is taking some of the risky assets held by Citigroup off its balance sheet, a move that would give the company more breathing room and put it in a better position to raise capital. It was unclear, however, exactly how that option might be structured, the people said.

A spokesman for New York-based Citigroup declined comment.

The company has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup's balance sheet will turn into losses as the economy worsens and the markets stay turbulent — losses that could be nearly impossible to reverse.

Citigroup is such a large, interconnected player in the financial system that if it were to collapse it would wreak havoc on already fragile financial and economic conditions. The company has operations stretching around the globe in more than 100 countries.

Analysts consider Citigroup the most vulnerable among the major U.S. banks — especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.

Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters.

The company has already received a $25 billion from the Treasury Department's $700 billion financial bailout program. In return for the cash infusion, the government gets a partial ownership stake.