By Gabriel Chen

A HORROR run for global financial institutions has deepened with the share price of the once-mighty United States giant Citigroup slumping under US$1.

This follows a fresh US$30 billion (S$46 billion) US government bailout for the world's former No. 1 insurer American International Group (AIG) earlier this week and the biggest loss in British business history at the Royal Bank of Scotland (RBS) a week ago.

Observers are increasingly alarmed that the tens of billions of dollars being pumped into institutions like Citi and AIG appear to be having little effect.

The past week or so is being seen as the worst spell for global banks since the collapse of US investment bank Lehman Brothers in September.

Veteran investor Jim Rogers told The Straits Times: 'Many of the major American banks are technically bankrupt.

'The world's got very serious problems and things are not going to be better in the second half or in 2010.'

'It certainly seems like there's investor capitulation,' said Mr Elan Cohen, JP Morgan Private Bank's senior portfolio manager. 'In the US, the government is taking a larger stake in Citigroup, and many investors are just unclear what this will actually mean in practice for banks, and that has led to increased investor anxiety which has led them to continue selling bank shares.'

At its 2006 peak, Citi's share price was US$55.70 as it strode the globe unchallenged as the No. 1 bank with a total market value of US$277.2 billion.

It is now worth just US$5.6 billion even after repeated US government bailouts worth tens of billions of dollars.

Citi's ranking in terms of market size has crashed from No. 1 to No. 184, below Singapore's three banks, for instance, and even minnows like Turkey's Akbank, Bloomberg News reported.

Singapore's local banks are regarded as being well-capitalised, though share prices have suffered amid the mauling taken by almost all banks worldwide.

Crippling losses suffered by major global banks like Citi were the genesis of the rapidly-spreading global recession.

Some banks, such as Lehman Brothers, collapsed under the weight of toxic debts linked to the disastrous US sub-prime mortgage market. But governments in Europe and the US have decided that the likes of Citi, AIG and RBS are too big to be allowed to fail - as the ripple effects on the wider economy would be diabolical.

Citi's share price fell to 97 US cents in New York on Thursday, its lowest ever, before recovering to US$1.02.

'I don't think anybody could foresee this,' said Mr Mark Pawley, chief executive of Singapore-based private equity firm Oxley Capital. 'Citi's not going to fail, so the real question is whether it's going to be nationalised. Yes, possibly.'

Last week, Citi unveiled a plan to convert preference shares - an instrument used to raise funds - into common stock to improve its capital base.

The Government of Singapore Investment Corporation (GIC) was among several investors to do so, exchanging its US$6.88 billion in preference shares for ordinary shares at US$3.25 apiece.

Given Citigroup's share price of US$1.02, GIC would be sitting on a paper loss of about US$4.68 billion or 68 per cent of its investment. Yesterday, the shares were six US cents higher at US$1.08 in early trade.

GIC's group chief investment officer Ng Kok Song had earlier said that due to the challenging economic climate, 'the profitability of US banks is likely to be impaired in the next two years'.

This week, Minister Mentor Lee Kuan Yew, GIC's chairman, said that GIC bought into global banks UBS and Citigroup 'too early'. GIC bought into UBS in December 2007 and its Citi stake in January last year.

For now, Citigroup does not face any immediate risk of being thrown off the New York Stock Exchange as it has suspended until June 30 a rule requiring the delisting of companies whose share price remains persistently below US$1.

But with investors losing confidence in a bank that has not turned a profit since late 2007, Citi could possibly be struck off the Dow Jones Industrial Average, the main US stock benchmark.

Ms Naomi Kim of Dow Jones Indexes, which maintains that index, told Reuters they are 'watching the situation closely'.

Mr Adam Rahman, Citi Singapore's corporate affairs director, said yesterday: 'It is business as usual at Citi Singapore. We have not seen any customer reaction that is out of the ordinary.'

This article was first published in The Straits Times.