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shares edged lower in the wider stock market selloff early Friday, despite a fresh vote of confidence from Bank of America-Merrill Lynch analysts.

Analyst Guy Moszkowski upgraded Citigroup's stock to a buy rating from the equivalent of a sell. He said Citi's "credit quality is stabilizing; technical overhang of new-share issuance is past; and, given Citi's new disclosure of core Citicorp vs. non-core Citi Holdings, we see limited book-value downside potential," he writes in a note on Friday.

The analyst pointed to Citi CEO Vikram Pandit's comments during

second-quarter earnings

that consumer credit was beginning to stabilize.

What the Fed? Citi Circle

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"This is of course key for Citi and its large portfolio of mortgage and other consumer debt," Moszkowski writes. "With crisis largely past for Citi, we believe psychology on the company is changing."

Shares of the company have been rising since

Citigroup completed its preferred to common share exchange late last month. The stock was recently down a penny to $4.05.

The exchange offer, announced in February, swapped roughly $58 billion worth of preferred shares and trust preferred securities for common stock. The private and public offerings included a total of $25 billion preferred securities owned by the U.S. government. The exchange transaction has made the government Citi's largest stakeholder, holding roughly 34% of the company's shares.

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Analysts and investors will now be focused on how long it will take before Citi can get out from under the government's grasp. Other big financial firms including

Goldman Sachs

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Morgan Stanley

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JPMorgan Chase

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were able to repurchase their preferred stakes during the second quarter.

Citi's businesses are still struggling -- and more so than its large bank counterparts. The company's attempts to reshape itself during the worst financial crisis since the Great Depression through a deleveraging of risk, expense cuts, restructuring of core businesses and management changes, has taken a toll on its revenue.

Citi has a large consumer loan book that remains troubled. It also keeps fidgeting with its executive management team and board of directors to add more commercial banking experience. Most recently the company added three new board members, including the former superintendent of the New York State Banking Department.

Still Moszkowski seems optimistic regarding the company.

"Citi has survived and re-capitalized, with considerable government support," he writes. "The company seems ready to start (almost) fresh."

"Of course not all its troubles are behind Citi," he cautions. But "

all this said we think there is considerable, albeit early, evidence that credit quality is beginning to stabilize ... but we believe that as the recovery begins to take hold, the shares will again trade based on book

value and on potential for actual profitability."


Written by Laurie Kulikowski in New York