Citi's a Tough Sell

Morningstar's Peters says changes due at the beginning of the year to purchase accounting rules will require acquiring firms to essentially mark the entire balance sheet to market at the time the deal closes. Marking Citi's balance sheet to market, given the toxic assets and loans it has on its books "would require a ton of equity a buyer would have to inject into Citigroup," she says.

"That's just not possible," she says. "Nobody has that much equity to spare."

It was just a week ago when Citi was a buyer, not a seller.

After failing to complete a deal to purchase Wachovia (WB Quote) last month, Citi set its sights on smaller acquisitions and has had acquisition talks with Bethesda, Md.-based Chevy Chase Bank and Valley National Bank (VLY Quote). On Thursday Reuters reported that Citi is now one of several bidders for Chevy Chase Bank, along with JPMorgan Chase (JPM Quote) and Capital One (COF Quote).

Government largess has not been much help for the ailing bank. Citi was one of the nine largest U.S. banks to receive the first round of preferred equity investments the federal government made through the Troubled Assets Relief Program, or TARP. It was one of four banks, also including JPMorgan Chase, Bank of America (BAC Quote) and Wells Fargo (WFC Quote), to receive $25 billion from the government, the largest investments made through the program.

The confidence boost from the government hasn't done any of the banks much good of late. All were traded at or below 52-week lows Friday, before rebounding slightly in the late afternoon rally.