Citi Detractors Roar

Citigroup (C Quote) dropped 7% after an analyst suggested the bank would have to cut its dividend or sell some assets in order to raise capital levels.

CIBC analyst Meredith Whitney cut her rating on the New York banking titan to the equivalent of a sell rating. According to a note, she is concerned that Citi's busy acquisition strategy in the last two years has taken away too much capital, which has not been replaced by earnings growth.

Citi shares hit a new 52-week low on Thursday, dropping $2.69 to $38.67. The downgrade fueled a selloff in the financial sector on Thursday. The Amex Securities Broker/Dealer index dropped 3.5%, while the KBW Bank Index slid 4%.

The selloff renews pressure on Citi's CEO Chuck Prince, whose lackluster performance has raised calls for his resignation. Prince and other financial industry CEOs who are perceived as underperforming -- such as Bear Stearns (BSC Quote) chief Jimmy Cayne -- have come under renewed scrutiny now that Merrill Lynch (MER Quote) has dumped CEO Stan O'Neal following an embarrassing $8 billion bad debt writeoff.

A Citi spokeswoman declined to comment.

"Since 2006, Citi has made $26 billion in acquisitions, taken over $6 billion in recent charges, and increased its dividend against a backdrop off almost no net income growth," Whitney writes. But Citi's tangible capital ratios have fallen to their "lowest level in decades," at just 2.8% of assets, compared to the average tangible capital ratio of 5% at other large banks, according to Whitney.