Citi Needs More Than Prince to Avoid Pauper's Grave

Updated from Thursday, Nov. 20

Citigroup (C Quote) shares have been beaten to such a pulp lately that even a vote of confidence from its onetime savior may not be able to save the struggling banking titan.

Saudi Prince Alwaleed said Thursday he plans to increase his stake in Citi to 5%, and expressed support of the bank's management.

Prince Alwaleed, who currently holds less than a 4% stake, has been buying shares of Citi believing they are undervalued. The longtime Citi investor said in a press release that the New York-based bank has been taking necessary steps to improve its operations amid the ongoing credit crisis.

He is "fully confident" that Citi's universal banking model and global franchise will make it "a long term winner" in the financial services industry, the release said.

The stock fell 26% Thursday, its worst one-day percentage decline ever, as investors disregarded Prince Alwaleed's backing of the big bank. Citigroup officials have decided they need to consider a range of scenarios that were unthinkable only weeks ago, including selling all are parts of the bank, The Wall Street Journal reports on Friday.

The stock has been so battered that Citi is reportedly lobbying federal officials to reinstate the short sale ban, the Journal reported.

Tim Ghriskey, the chief investment officer of Solaris Asset Management, says the run on Citi's stock price is panic by traders and not fundamentally based.

"There are very few real buyers out in the market, or sellers really," Ghriskey says. "We're down to just day traders moving money around and shorting anything with you-name-it exposures. And Citi's one of the favorite targets, because they have exposure everywhere. It's not a fundamentally based market. It's a market gripped by panic and, at least right now, we can't find a place to hide."

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