EFinancialInvestment

General Motors Corp.’s board is meeting in Detroit to discuss a rescue plan to present to Congress in two days that may determine if Chief Executive Officer Rick Wagoner can save the company and keep his job.

Directors started reviewing the proposal at noon today and will continue tomorrow, people familiar with the plans said. GM will prepare a 10- to 12-page public document and a private, more detailed plan of about 80 pages with background material, the people said. GM said Nov. 7 it may be short by year’s end of the $11 billion minimum in cash needed to pay monthly bills.

GM shares have gained on investor optimism that a plan to slash debt, cut labor costs and possibly eliminate half the automaker’s U.S. brands may help win as much as $12 billion to stay in business during the steepest industry slowdown in at least a decade. The stock rose the most in a two-day period in at least 28 years in New York trading at the end of last week, and climbed five out of six days.

“We envision the current Congress will authorize a short- term bridge loan that carries” GM, Ford Motor Co. and Chrysler LLC to the start of President-elect Barack Obama’s administration in January, Himanshu Patel, a New York-based analyst at JPMorgan Chase & Co., said in a note to investors on Nov. 25. He rates GM and Ford shares “neutral.”

GM wants to cut its $43 billion in debt, even after getting the government loans, to ensure its future viability, people familiar with the plan said last week. The automaker will ask current debt holders to exchange current bonds for lower value debt that may also include equity, the people said.

Closing Plants

The company also may seek an end to provisions that pay union employees not to work when their plants are shut down, the people said. GM is trying to close plants and slow production to adapt to auto sales that may fall to 11.7 million cars and trucks next year from 16.1 million last year.

The largest U.S. automaker also may ask to delay a $7 billion payment to a union retiree health fund, drop more brands and rework an accord with GMAC LLC to prove it can survive and repay the government, said the people, who asked not to be named because details haven’t been presented to Congress.

Lawmakers grilled Wagoner during two days of testimony Nov. 18 and Nov. 19 before deadlocking over whether to let the automakers tap $25 billion in low-interest borrowing.

‘Forthright Assessment’

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid agreed to a second lame-duck congressional session and instructed Wagoner and fellow CEOs Alan Mulally of Ford and Robert Nardelli of Chrysler to prepare specifics on how they’ll navigate past the crisis.

Pelosi and Reid told the automakers in a Nov. 21 letter that they must provide “a forthright, documented assessment” of their operating cash positions, short-term liquidity needs “and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability.”

While Republican critics such as Senator Richard Shelby from Alabama have said the auto chiefs were “arrogant” two weeks ago and that management changes might be needed, neither the government nor GM’s board has yet signaled Wagoner will need to leave to get an agreement, people familiar with those discussions said.

After burning through $6.9 billion in cash last quarter, GM said Nov. 7 that it had $16.2 billion as of Sept. 30, raising the prospect of falling short by year’s. GM has said a bankruptcy filing would be a “disaster.”

Prospective Buyers

The automaker, already marketing its Hummer unit to prospective buyers, is also studying whether to sell or close the Pontiac, Saab and Saturn brands, people familiar with those plans said last week. GM also sells models under Chevrolet, Cadillac, Buick and GMC brands.

GM gained 43 cents, or 9 percent, to $5.24 on Nov. 28 in New York Stock Exchange composite trading. Dearborn, Michigan- based Ford rose 54 cents, or 25 percent, to $2.69. This year, GM has declined 79 percent and Ford dropped 60 percent.

GM’s 8.375 percent bonds due in 2033 rose 4 cents to 23 cents on the dollar Nov. 28 to yield 36 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has fallen from 36.5 cents at the end of October and 81 cents at the end of last year, Trace data show.

U.S. retailers that lowered prices as much as 70 percent on the day after Thanksgiving may see sales eroded by steeper price cuts in what may be the worst holiday shopping season in six years.

Bargains such as Best Buy Co.’s Toshiba Corp. satellite laptop computer for $379.99, a $270 discount, and Gap Inc.’s buy-one-get-one free holiday sweater offer may leave retailers with slowing sales even as they entice more people to visit stores during the holidays.

Retailers are looking for year-end demand to make up for stagnating sales and waning consumer confidence. The holiday months might account for a third or more of stores’ annual profit, and consumer spending makes up more than two-thirds of the U.S. economy, which is falling deeper into a recession.

“The consumer is scared out of their wits and they’re just going to spend less,” Howard Davidowitz, chairman of retail consultant Davidowitz & Associates in New York, said yesterday. “The consumer is now saying ‘Unless something sells at a certain price, I’m done.’”

Individuals may spend an average of $616 on holiday gifts this year, down 29 percent from a year earlier, according to a Gallup Inc. poll.

Retailers promoted “doorbuster” deals to attract customers on the Friday after Thanksgiving, said to be when retailers started to make their annual profit.

One Dead

A worker was trampled by customers and killed yesterday at a Wal-Mart Stores Inc. location in Long Island, New York, according to local police and the company. At least four shoppers were hurt at the store in Valley Stream, located about 13 miles (20 kilometers) from New York City, Nassau County Police said in a statement.

November and December sales at stores open at least a year may rise 1 percent, the smallest gain since 2002, according to the International Council of Shopping Centers, a New York-based trade group.

Retailers used lower prices at earlier hours to win customers that were starting their holiday shopping with less than four weeks before Christmas.

Kohl’s Corp., the fourth-largest U.S. department store, opened at 4 a.m. Wal-Mart and Macy’s Inc. had a 5 a.m. start. Gap opened some locations on Thanksgiving Day.

Wal-Mart, based in Bentonville, Arkansas, has bucked the trend, with its emphasis on low prices winning customers during the economic slump. The retailer is the only Dow Jones Industrial Average company to have risen this year. It’s gained 18 percent, while the 30-member index has tumbled 33 percent.

Black Friday

Discounts on the Friday after Thanksgiving, called Black Friday, pulled in consumers who felt the pinch of the economic slump and higher fuel prices earlier this year.

Crowds at the Woodfield Mall in Schaumburg, Illinois, today “gives me optimism that that the 2 percent growth I’m forecasting can be reached” during the holiday period, Jay McIntosh, president of Consumer Foresight LLC, a Chicago-based consulting firm, said today in a Bloomberg Television interview.

Under-30 adults, who may not have been hurt as much as older consumers by stock-market declines, were out shopping, McIntosh said.

“Virtually every store I walked by was crowded,” McIntosh said. “The small specialty retail stores were crowded. Last year, they weren’t.”

Malls operated by Taubman Centers Inc. saw a similar presence of young shoppers, spokeswoman Karen Mac Donald said.

The Fairlane Town Center mall in Dearborn, Michigan, had more early and younger shoppers this year, Mac Donald said in an e- mail. About 75 lined up at the Aeropostale location by 4:30 a.m.

Richard Simmons

Fitness personality Richard Simmons, wearing red-and-white- striped very short shorts, sneakers and a red muscle shirt with fluffy white Santa trim, bounced around the outside of Macy’s in New York’s Herald Square early yesterday morning, where crowds mobbed every entrance in advance of its opening.

Richard Feijoo, 21, and his twin brother Jesus from Brooklyn were waiting at the front of the line at Herald Square and were shopping for themselves.

“It’s low prices, a good store and it’s Black Friday, so we’re here early,” Richard said. “Jeans, Levi’s, only clothes. I go shopping at Macy’s in Brooklyn so I know exactly what I’m looking for.

There were 5,000 people waiting to get in, Macy’s Chief Executive Officer Terry Lundgren said in a Bloomberg Television interview.

“A lot of folks are walking out with bags,” Lundgren said. “We got them in with great values, and what I really hoped is that they will spend more of whatever they’re going to spend at Macy’s, even if it’s less than last year.”

Less Spending

Americans cut spending by 1 percent last month, the biggest decline since the 2001 recession. After adjusting for inflation, spending was down for the fifth straight month, the longest streak since 1990-1991, according to Commerce Department data.

Toys “R” Us Inc., the largest U.S. toy-store chain, is putting “very aggressive” promotions in place to draw in shoppers, Chief Executive Officer Gerald Storch said in an interview.

“We know that value is very important in this economic situation and we’re determined to be aggressive throughout the holiday season in offering that value,” Storch said in a telephone interview.

U.S. retailers opened their doors at midnight and discounted merchandise as much as 70 percent on the day after Thanksgiving to entice customers during what may be the worst holiday shopping season in six years.

Best Buy Co. chopped prices on a Toshiba Corp. satellite laptop computer to $379.99, a $270 discount, while Gap Inc. had a buy-one-get-one free holiday sweater offer, to lure customers on so-called Black Friday, the traditional start to the holiday shopping season that makes up a third or more of retailers’ annual profit.

“I’m concerned,” Matthew Katz, a New York-based retail consultant with AlixPartners LLP, said today in a Bloomberg Radio interview. “The storm that we’re facing has moved from Wall Street to Main Street.”

Individuals may spend an average of $616 on holiday gifts this year, down 29 percent from a year earlier, according to a Gallup Inc. poll. Consumer spending makes up more than two- thirds of the U.S. economy, which has dropped into a recession amid declining consumer confidence and rising unemployment.

A worker was trampled by customers and killed at a Wal-Mart Stores Inc. location in Long Island, New York, according to local police and the company. At least four other shoppers were hurt at the store in Valley Stream, located about 13 miles (20 kilometers) from New York City, Nassau County Police said in a statement.

Retailers promote “doorbuster” deals to attract customers on Black Friday, said to be when retailers started to make their annual profit, having paid off their costs from sales earlier in the year.

Saving Money

“We’re out to save money,” said 62-year-old Jeanne Molloy, who was taking a bus from New York City to Woodbury Common Premium Outlets in Central Valley, New York, with a friend and an empty suitcase yesterday. “The economy is bad.”

At the Fort Henry Mall in Kingsport, Tennessee, about 150 people milled around at 4:45 a.m., waiting for the opening of Belks Inc. and J.C. Penney Co. stores offering specials on sweaters, binoculars, and luggage.

Brenda Little, 42, said she was disappointed at the sales this year and said the only reason she was out at the crack of dawn was for her 14-year-old daughter, Marie, who combed the mall in search of a cheap iPod and snow boots.

Her family is cutting back their Christmas budget because of the economy, drawing names with in-laws to buy a single gift for one person rather than smaller items for everybody, Little said.

Her husband, a contractor, has survived one round of layoffs at his company, Little said. While his job is safe for now, “you still have to watch it down the road in case just after Christmas that does happen,” she said.

Holiday Forecast

November and December sales at stores open at least a year may rise 1 percent, the smallest gain since 2002, according to the International Council of Shopping Centers, a New York-based trade group.

Retailers used lower prices at earlier hours to win customers that were starting their holiday shopping with less than four weeks before Christmas.

Kohl’s Corp., the fourth-largest U.S. department store, opened at 4 a.m. Wal-Mart and Macy’s Inc. had a 5 a.m. start. Gap opened some locations on Thanksgiving Day.

Retail stocks have tumbled this year along with the U.S. economy. The Standard & Poor’s 500 Retailing Index was down 35 percent through Nov. 26 and dropped another 1.6 percent today, with Tiffany & Co. and Target Corp. leading the way lower.

Wal-Mart, based in Bentonville, Arkansas, has bucked the trend, with its emphasis on low prices winning customers during the economic slump. The retailer is the only Dow Jones Industrial Average company to have risen this year. It’s gained 18 percent, while the 30-member index has tumbled 33 percent.

Black Friday

Black Friday discounts pulled in consumers who felt the pinch of the economic slump and higher fuel prices earlier this year.

Crowds at the Woodfield Mall in Schaumburg, Illinois, today “gives me optimism that that the 2 percent growth I’m forecasting can be reached” during the holiday period, Jay McIntosh, president of Consumer Foresight LLC, a Chicago-based consulting firm, said today in a Bloomberg Television interview.

Under-30 adults, who may not have been hurt as much as older consumers by stock-market declines, were out shopping, McIntosh said.

“Virtually every store I walked by was crowded,” McIntosh said. “The small specialty retail stores were crowded. Last year, they weren’t.”

Malls operated by Taubman Centers Inc. saw a similar preponderance of young shoppers, spokeswoman Karen MacDonald said.

The Fairlane Town Center mall in Dearborn, Michigan, had more early and younger shoppers this year, MacDonald said in an e-mail. About 75 lined up at the Aeropostale location by 4:30 a.m.

Macy’s Holidays

Fitness personality Richard Simmons, wearing red-and-white- striped very short shorts, sneakers and a red muscle shirt with fluffy white Santa trim, bounced around the outside of Macy’s in New York’s Herald Square early this morning, where crowds mobbed every entrance in advance of its opening.

Richard Feijoo, 21, and his twin brother Jesus from Brooklyn were waiting at the front of the line at Herald Square and were shopping for themselves.

“It’s low prices, a good store and it’s Black Friday, so we’re here early,” Richard said. “Jeans, Levi’s, only clothes. I go shopping at Macy’s in Brooklyn so I know exactly what I’m looking for.

“This is all about me here right now. Today we get to be selfish a little bit,” said Richard, who said his Christmas gift budget is a bit less than last year.

There were 5,000 people waiting to get in, Macy’s Chief Executive Officer Terry Lundgren said in a Bloomberg Television interview.

‘Great Values’

“A lot of folks are walking out with bags,” Lundgren said. “We got them in with great values, and what I really hoped is that they will spend more of whatever they’re going to spend at Macy’s, even if it’s less than last year.”

A drop in consumer spending in October and weakening U.S. business investment signal that the U.S. economy may sink further in coming months.

Americans cut spending by 1 percent last month, the biggest decline since the 2001 recession. After adjusting for inflation, spending was down for the fifth straight month, the longest streak since 1990-1991, according to Commerce Department data.

That’s evidenced by people competing for bargains in front of stores this holiday season.

“There is no fun in this,” said Angel Croll, a single mom with two children, who arrived at a Kohl’s store in Greensboro, North Carolina, 55 minutes before it opened at 4 a.m.

Knife Prices Cut

More than 400 people lined up behind the 33-year-old auditor, who planned to buy two knife sets regularly priced at $99.99 each for $29.99.

Next she headed to a Dick’s Sporting Goods Inc. store for three coats marked half off at $39.99 and then to Wal-Mart for clothes, toys and a $69 Samsung digital camera. She plans to spend $400 to $500 on Christmas gifts, down from $600 last year.

“My children would not be able to get half of what I’m getting them without Black Friday,” Croll said.

In San Jose, California, resident Akin Scott, 46, said he’s looking to spend about $1,500 this year on holiday shopping, down from roughly $2,000 last year.

A family member wants an iPhone, though items on the top of wish lists are going to get more careful scrutiny this year, Scott said.

“We’re having to think really hard about that,” he said.

Asian stocks rose, driving the region’s benchmark index to its second-best week this year, on optimism steps by governments to pull the world’s economy out of recession will boost demand for raw materials and heavy equipment.

BHP Billiton Ltd., Australia’s largest oil producer, added 7.6 percent as crude headed for the best week in five months. Komatsu Ltd. jumped 6.9 percent in Tokyo on speculation demand for its excavators will increase in China, which lowered interest rates this week. The cost of protecting bonds from default in the region fell.

“Sentiment is stabilizing,” said Kwon Hyeuk Boo, a fund manager at Daishin Investment Trust Management Co. in Seoul, which oversees about $1.4 billion in assets. “Investors are buying into expectations that support measures will keep coming. China’s strong will to support its economy is serving as a key catalyst to Asian markets.”

The MSCI Asia Pacific Index advanced 1.5 percent to 82.66 at 4:01 p.m. in Tokyo. The measure has rallied 6.8 percent this week, a performance only beaten this year by the 6.9 percent rally at the end of October, when central banks from Japan to Taiwan lowered borrowing costs.

China’s central bank cut interest rates by the most in 11 years, three weeks after the government announced a stimulus plan worth more than $500 billion. The Federal Reserve committed $800 billion to unfreeze credit markets, while Citigroup Inc. received a $306 billion government rescue and the European Union proposed a 200 billion euro ($258 billion) spending package.

The gain pared November’s drop to 3.8 percent, the seventh monthly decline and the longest losing streak since the gauge began in December 1987.

Panasonic Earnings

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, including the Thai government and Hutchison Whampoa Ltd., fell 2.5 basis points to 365 at 12:45 p.m. in Hong Kong.

Japan’s Nikkei 225 Stock Average added 1.7 percent to 8,512.27 today. Gains were limited as Panasonic Corp. slumped to a five-year low after slashing its profit outlook as the country’s recession deepened. U.S. markets were closed yesterday for the Thanksgiving holiday.

India’s Sensitive Index dropped 0.2 percent as stocks traded for the first time since militant attacks that started on Nov. 26 in Mumbai left as many as 125 people dead. Hotel and airline stocks led declines.

“The aim of the attackers will have been to deter foreign businessmen and indeed foreign fund managers from visiting India,” CLSA Ltd.’s chief strategist Christopher Wood wrote in a report. “Sadly, those efforts will in part be successful.”

Commodity Producers

BHP rose 7.6 percent to A$31. Rio Tinto Group jumped 8.8 percent to A$46.60 after Morgan Stanley resumed coverage of the world’s third-largest mining company with an “overweight” rating. Mitsui & Co., which generates the most profit from oil among Japan’s trading companies, advanced 8.3 percent to 846 yen.

Crude oil rose 7.1 percent this week, the most since June, to trade at $53.45 recently. Gold traded near a five-week high as federal funds futures showed traders see a rate cut from the Federal Reserve on Dec. 16 as a certainty. Gains in commodities helped Australia’s S&P/ASX 200 rally by a record 9.5 percent this week.

Ministers from the Organization of Petroleum Exporting Countries, which supply 40 percent of the world’s oil, are meeting tomorrow for the third time in as many months to discuss a further cut in production to shore up prices. Russia, with the third-largest reserves globally, said this week it will coordinate with OPEC on prices.

`Overweight’ China

Komatsu gained 6.9 percent to 1,144 yen. Aluminum Corp. of China, the country’s largest producer of the metal, rose 4.9 percent to HK$3.46. China Railway Group Ltd., Asia’s biggest construction company, gained 2.6 percent to HK$5.19.

Chinese companies listed in Hong Kong also gained after BNP Paribas said investors should “overweight” such shares.

“Demographics, rural land reform and healthcare spending bode well for China’s gradual shift to a consumption-driven economy,” Erwin Sanft, head of China and Hong Kong equities at BNP, wrote in a note to clients. The nation’s “stocks look cheap in a global context for the first time in five years.”

Panasonic lost 11 percent to 1,144 yen, the lowest close since June 2003. The world’s biggest maker of consumer electronics yesterday reduced its annual net income, saying demand and prices have fallen as the U.S. financial crisis spread across the globe.

Nomura Securities Co. and HSBC Holdings Plc cut their ratings on Panasonic. Nomura also lowered its recommendations on Sony Corp. and Sharp Corp., citing tumbling television prices.

Japan Recession

Panasonic joins Toyota Corp. and Nintendo Co. in cutting earnings forecasts this month as the nation’s exports declined, companies reduced production, consumers spent less and fewer people looked for work. Japan’s economy shrank for a second quarter in the three months ended Sept. 30, entering the first recession since 2001.

“The degree of this downward revision is certainly far worse than what we and consensus had expected,” Carlos Dimas at HSBC wrote in a note to clients. “The slump in demand for consumer electronics overseas is deepening beyond already pessimistic expectations.”

Indian Hotels Ltd., the nation’s biggest hotel operator and which manages one of the hotels that was attacked, plunged 13 percent to 42.2 rupees in Mumbai. Jet Airways (India) Ltd., the nation’s largest domestic airline, slumped 4.6 percent to 131.4 rupees. Kingfisher Airlines Ltd., the second biggest, tumbled 5.8 percent to 27.55 rupees.

Orders for U.S. durable goods fell twice as much as forecast in October as the credit freeze deepened and sales tumbled.

The 6.2 percent drop in bookings of goods meant to last several years was the biggest in two years and followed a revised 0.2 percent decrease in September, the Commerce Department reported today in Washington. A separate report from Commerce showed consumer spending fell by the most since the 2001 recession.

Companies are likely to keep cutting back as sales slump. Regional reports have shown further weakness in manufacturing this month as access to credit dried up, indicating declines in business investment will hurt economic growth through the rest of the year and into 2009.

“Businesses are accelerating the pace of jobs cuts and canceling investment plans,” Michelle Meyer, an economist at Barclays Capital in New York, said before the report. “The economy appears to have fallen into a deep recession.”

A Labor Department report showed that initial claims for unemployment insurance last week slipped to 529,000 from 543,000 the prior week, while remaining close to the highest level since 1992.

Treasuries Rally

Treasuries, which rose earlier in the day, stayed higher after today’s reports. Yields on benchmark 10-year notes fell to 3.09 percent at 8:48 a.m. in New York, from 3.12 percent late yesterday. Futures contracts on the Standard & Poor’s 500 Stock Index dropped 1.6 percent to 839.20.

Economists projected orders would fall 3 percent after a previously reported 0.9 percent increase in September, according to the median of 72 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 6.5 percent to a gain of 0.5 percent.

Excluding demand for transportation equipment, which tends to be volatile, orders dropped 4.4 percent, also more than anticipated and the biggest decline since January 2002. Those bookings were projected to fall 1.6 percent, according to the Bloomberg survey.

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, decreased 4 percent, the biggest decline in almost two years. Shipments of those items, used in calculating gross domestic product, fell 2.4 percent following a 1.6 percent gain in September.

Transport Orders

Bookings for transportation equipment fell 11 percent, today’s report showed. Orders for commercial aircraft dropped 4.7 percent and those for automobiles declined 4.5 percent.

Boeing Co., the world’s second-largest commercial planemaker, said it received 14 orders for aircraft in October, down from 41 the previous month. A strike by 27,000 machinists at the Chicago-based company probably hindered demand. The walkout was resolved on Nov. 1.

Auto-industry figures released this month showed cars and light trucks sold at a 10.6 million annual pace in October, the lowest since April 1991.

National manufacturing reports signaled broad declines in bookings as companies failed to secure financing for big purchases. Manufacturing contracted in October at the fastest pace in 26 years, the Tempe, Arizona-based Institute for Supply Management reported earlier this month.

Regional Reports

Regional reports indicate the decline in manufacturing is accelerating. The New York Fed’s general economic index fell this month to the lowest level since record-keeping began in 2001. The Philadelphia Fed said manufacturing in its region shrank at the fastest pace in 18 years.

Today’s report may lead some economists to lower forecasts for growth in the fourth quarter. Preliminary figures on gross domestic product from the Commerce Department yesterday showed the economy contracted at a 0.5 percent annual rate from July through September. It was the second drop in a year and the biggest since the 2001 recession.

U.S. lawmakers postponed until December a vote on whether to give American automakers $25 billion in new federal loans. Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi gave the companies a Dec. 2 deadline to present restructuring plans.

A slowdown in consumer spending and business investment is causing manufacturers to cut back. Fleetwood Enterprises, the third-largest U.S. maker of recreational vehicles, said it’s closing 8 of its 24 plants because of reduced demand for travel trailers and factory-built housing.

“In the current economic climate, it is essential that we match our production to demand,” Chief Executive Officer Elden Smith said in a Nov. 24 statement. “We must position Fleetwood to operate profitably under the present and foreseeable business circumstances.”

The decline in U.S. house prices accelerated in September and the economy shrank in the third quarter at a faster pace than first estimated as the grip of the credit crunch tightened.

The S&P/Case-Shiller home-price index fell 17.4 percent from a year earlier. The Commerce Department said gross domestic product dropped an annual 0.5 percent as household spending slid the most since 1980. While consumer confidence rose this month, the Conference Board’s gauge remained near the lowest on record.

“The economy is turning down pretty dramatically,” Treasury Secretary Henry Paulson said at a press conference in Washington to outline new government efforts to unfreeze credit. “It’s very important that lending continue to be available.”

Today’s reports underscore concerns that the economy is at risk of a contractionary spiral as lenders cut back credit, causing spending to fall and companies to slash investments and payrolls. The Treasury and Federal Reserve today began two new programs to bring down interest rates on mortgages and consumer loans, committing at least $800 billion.

Stocks were little changed, with the Standard & Poor’s 500 Stock Index up 0.2 percent at 853.37 at 11:51 a.m. in New York, after rallying more than 6 percent the past two days. Treasuries rose after the Fed’s plan to buy up to $600 billion of debt issued or backed by housing-finance companies spurred some investors to buy government securities as a hedge.

Economists anticipate that the drop in GDP worsened in the current quarter because of the deepening credit crunch. The collapse of Lehman Brothers Holdings Inc. in September triggered a renewed bout of turmoil, forcing the Fed to step up as a lender of last resort.

‘Ugly’ Quarter

“It’s the fourth-quarter numbers that are really going to look ugly,” Joel Naroff, president of Naroff Economic Advisors Inc. and most accurate forecaster in a 2008 Bloomberg News survey of economists, said in a Bloomberg Television interview.

Home prices decreased 1.8 percent in September from the prior month, the biggest one-month drop since March, the S&P/Case-Shiller report showed.

S&P/Case-Shiller also released quarterly figures for nationwide home prices. That measure showed a 16.6 percent drop in the three months through September from the same time last year, compared with a 15.1 percent drop in the second quarter.

Economists forecast the 20-city index would fall 16.9 percent from a year earlier, according to the median of 28 estimates in a Bloomberg News survey. Projections ranged from declines of 16 percent to 17.2 percent.

Broad Decline

Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in September, led by a 31.9 percent drop in Phoenix and a 31.3 percent decline in Las Vegas.

A separate government report confirmed the decline in property values accelerated. Home prices fell 1.3 percent in September from the previous month, the biggest one-month drop since records began in 1991, the Federal Housing Finance Agency said today.

The GDP report showed consumer spending, which accounts for more than two-thirds of the economy, dropped at a revised 3.7 percent annual rate in the third quarter, more than the 3.1 percent decrease estimated by Commerce last month.

Wage figures showed a smaller gain than previously estimated in the second quarter, reflecting the weakening job market. Salaries grew $13.3 billion, $37.3 billion less than Commerce had projected.

Retailers ranging from Best Buy Co. to Nordstrom Inc. are cutting revenue forecasts ahead of what may be the worst holiday shopping season in years.

‘Difficult Times’

“In 42 years of retailing, we’ve never seen such difficult times for the consumer,” Brian Dunn, Best Buy’s president and chief operating officer, said in a statement last week. “People are making dramatic changes in how much they spend, and we’re not immune from those forces.”

The Conference Board’s index of consumer confidence climbed to 44.9, the second-lowest reading since 1974, from a record low 38.8 the prior month, the private New York-based research group said today.

The improvement reflected expectations that the economic situation wouldn’t get much worse. The gauge of the outlook for the next six months increased to 46.7 from 35.7. The Conference Board’s measure of present conditions dropped to 42.2, the lowest since June 1993, from 43.5.

“The consumer is hunkered down,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts. “We are still expecting a contraction in consumer spending in the fourth quarter.”

Americans may pull back further after employers fired 240,000 workers in October and the unemployment rate jumped to the highest level since 1994.

Xerox Corp., the world’s largest maker of high-speed color printers, is eliminating 3,000 jobs and trimming manufacturing costs to save $200 million next year. Chief Executive Officer Anne Mulcahy yesterday said at a conference that Xerox isn’t projecting “any quick economic turnaround” in 2009.

The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a program of $200 billion to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.

“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”

The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said. Treasury Secretary Henry Paulson said at a press conference that $200 billion is just the “starting point” for the asset-backed securities program.

“The economy is turning down pretty dramatically,” he said. “It’s very important that lending continue to be available.”

Help for Housing

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.

Fannie and Freddie bonds rallied. The yield premium on Fannie Mae’s five-year debt over similar-maturity Treasuries tumbled 21.5 basis points to 114.7 basis points as of 8:35 a.m. in New York, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

“The cheaper that they could issue their debt, the more aggressively they should be able to buy mortgages in the secondary market,” said Alan Bosworth, director of agency trading at Vining Sparks in Memphis, Tennessee.

The Fed may hold the Fannie and Freddie debt and securities until they mature or sell them, with plans to be determined, government officials said on a conference call with reporters.

Low Rates

The U.S. officials, speaking on condition of anonymity, said they don’t see the Fed purchases of mortgage bonds as a way of “quantitative easing,” or using central bank policy to add reserves to the banking system when interest rates are very low, even though the purchases will have that effect.

Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.

The Fed hopes to have the TALF running by February. Traditional investors in the asset-backed securities include securities lenders and bank-affiliated conduits, the government officials said.

The asset-backed securities program is similar to the Fed’s effort to bring down the cost of financing for commercial paper, the short-term debt companies issue to finance payrolls and other expenses, because it goes beyond banks.

‘What Works’

“What the Fed has been trying to do is get a sense of what works and what doesn’t work,” said Derrick Wulf, who helps manage $70 billion in mostly fixed-income assets at Dwight Asset Management Co. in Burlington, Vermont. “One of the things that has worked is the commercial paper facility.”

Wulf added that “it can certainly improve credit conditions for consumers.”

The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.

Treasury staffers are in regular communication with President-elect Barack Obama’s team, officials said. New York Fed President Timothy Geithner, Obama’s pick to be Treasury secretary, was involved in today’s plans, though not in a capacity with the new administration, officials said.

Weakening Economy

With the asset-backed securities program, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.

Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.

Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.

The Fed will start buying the direct debt of government- sponsored enterprises — Fannie, Freddie and a dozen federal home loan banks — through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.

Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.

The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”

Too Big to Fail

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort.

The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.

William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as “too big to fail,” he said.

‘Credit Risk’

The government committed $29 billion to help engineer the takeover in March of Bear Stearns Cos. by New York-based JPMorgan Chase & Co. and $122.8 billion in addition to TARP allocations to bail out New York-based American International Group Inc., once the world’s largest insurer.

Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.

“No question there is some credit risk there,” Poole said.

Congressman Darrell Issa, a California Republican on the Oversight and Government Reform Committee, said risk is lurking in the programs that Poole thinks are safe.

“The thing that people don’t understand is it’s not how likely that the exposure becomes a reality, but what if it does?” Issa said. “There’s no transparency to it so who’s to say they’re right?”

The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world’s companies and brought down three of the biggest Wall Street firms.

Markets Down

The Dow Jones Industrial Average through Friday is down 38 percent since the beginning of the year and 43 percent from its peak on Oct. 9, 2007. The S&P 500 fell 45 percent from the beginning of the year through Friday and 49 percent from its peak on Oct. 9, 2007. The Nikkei 225 Index has fallen 46 percent from the beginning of the year through Friday and 57 percent from its most recent peak of 18,261.98 on July 9, 2007. Goldman Sachs Group Inc. is down 78 percent, to $53.31, on Friday from its peak of $247.92 on Oct. 31, 2007, and 75 percent this year.

Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy.

Most of the spending programs are run out of the New York Fed, whose president, Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary.

‘They Got Snookered’

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

“It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.”

President Franklin D. Roosevelt’s New Deal of the 1930s, when almost 10,000 banks failed and there was no mechanism to bolster them with cash, is the only rival to the government’s current response. The savings and loan bailout of the 1990s cost $209.5 billion in inflation-adjusted numbers, of which $173 billion came from taxpayers, according to a July 1996 report by the U.S. General Accounting Office, now called the Government Accountability Office.

‘Worst Crisis’

The 1979 U.S. government bailout of Chrysler consisted of bond guarantees, adjusted for inflation, of $4.2 billion, according to a Heritage Foundation report.

The commitment of public money is appropriate to the peril, said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. and a former economist at the New York Fed. U.S. financial firms have taken writedowns and losses of $666.1 billion since the beginning of 2007, according to Bloomberg data.

“This is the worst capital markets crisis in modern history,” Harris said. “So you have the biggest intervention in modern history.”

Bloomberg has requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral.

Collateral is an asset pledged to a lender in the event a loan payment isn’t made.

‘That’s Counterproductive’

“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,” Bernanke said Nov. 18 to the House Financial Services Committee. “We think that’s counterproductive.”

The Fed should account for the collateral it takes in exchange for loans to banks, said Paul Kasriel, chief economist at Chicago-based Northern Trust Corp. and a former research economist at the Federal Reserve Bank of Chicago.

“There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,” Kasriel said.

Bernanke’s Fed is responsible for $4.74 trillion of pledges, or 61 percent of the total commitment of $7.76 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.

“Too often the public is focused on the wrong piece of that number, the $700 billion that Congress approved,” said J.D. Foster, a former staff member of the Council of Economic Advisers who is now a senior fellow at the Heritage Foundation in Washington. “The other areas are quite a bit larger.”

Fed Rescue Efforts

The Fed’s rescue attempts began last December with the creation of the Term Auction Facility to allow lending to dealers for collateral. After Bear Stearns’s collapse in March, the central bank started making direct loans to securities firms at the same discount rate it charges commercial banks, which take customer deposits.

In the three years before the crisis, such average weekly borrowing by banks was $48 million, according to the central bank. Last week it was $91.5 billion.

The failure of a second securities firm, Lehman Brothers Holdings Inc., in September, led to the creation of the Commercial Paper Funding Facility and the Money Market Investor Funding Facility, or MMIFF. The two programs, which have pledged $2.3 trillion, are designed to restore calm in the money markets, which deal in certificates of deposit, commercial paper and Treasury bills.

Lehman Failure

“Money markets seized up after Lehman failed,” said Neal Soss, chief economist at Credit Suisse Group in New York and a former aide to Fed chief Paul Volcker. “Lehman failing made a lot of subsequent actions necessary.”

The FDIC, chaired by Sheila Bair, is contributing 20 percent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market, according to Raghu Sundurum and Viral Acharya of New York University and the London Business School.

Congress and the Treasury have ponied up $892 billion in TARP and other funding, or 11.5 percent.

The Federal Housing Administration, overseen by Department of Housing and Urban Development Secretary Steven Preston, was given the authority to guarantee $300 billion of mortgages, or about 4 percent of the total commitment, with its Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.

Federal Guarantees

Most of the federal guarantees reduce interest rates on loans to banks and securities firms, which would create a subsidy of at least $6.6 billion annually for the financial industry, according to data compiled by Bloomberg comparing rates charged by the Fed against market interest currently paid by banks.

Not included in the calculation of pledged funds is an FDIC proposal to prevent foreclosures by guaranteeing modifications on $444 billion in mortgages at an expected cost of $24.4 billion to be paid from the TARP, according to FDIC spokesman David Barr. The Treasury Department hasn’t approved the program.

Bernanke and Paulson, former chief executive officer of Goldman Sachs, have also promised as much as $200 billion to shore up nationalized mortgage finance companies Fannie Mae and Freddie Mac, a pledge that hasn’t been allocated to any agency. The FDIC arranged for $139 billion in loan guarantees for General Electric Co.’s finance unit.

Automakers Struggle

The tally doesn’t include money to General Motors Corp., Ford Motor Co. and Chrysler LLC. Obama has said he favors financial assistance to keep them from collapse.

Paulson told the House Financial Services Committee Nov. 18 that the $250 billion already allocated to banks through the TARP is an investment, not an expenditure.

“I think it would be extraordinarily unusual if the government did not get that money back and more,” Paulson said.

In his Nov. 18 testimony, Bernanke told the House Financial Services Committee that the central bank wouldn’t lose money.

“We take collateral, we haircut it, it is a short-term loan, it is very safe, we have never lost a penny in these various lending programs,” he said.

A haircut refers to the practice of lending less money than the collateral’s current market value.

Requiring the Fed to disclose loan recipients might set off panic, said David Tobin, principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC.

‘Mark to Market’

“If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.”

“Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.

Some of the bailout assistance could come from tax breaks in the future. The Treasury Department changed the tax code on Sept. 30 to allow banks to expand the deductions on the losses banks they were buying, according to Robert Willens, a former Lehman Brothers tax and accounting analyst who teaches at Columbia University Business School in New York.

Wells Fargo & Co., which is buying Charlotte, North Carolina-based Wachovia Corp., will be able to deduct $22 billion, Willens said. Adding in other banks, the code change will cost $29 billion, he said.

“The rule is now popularly known among tax lawyers as the ‘Wells Fargo Notice,’” Willens said.

The regulation was changed to make it easier for healthy banks to buy troubled ones, said Treasury Department spokesman Andrew DeSouza.

House Financial Services Committee Chairman Barney Frank said he was angry that banks used the money for acquisitions.

“The only purpose for this money is to lend,” said Frank, a Massachusetts Democrat. “It’s not for dividends, it’s not for purchases of new banks, it’s not for bonuses. There better be a showing of increased lending roughly in the amount of the capital infusions” or Congress may not approve the second half of the TARP money.

U.S. stocks climbed for a second day after the government said it will guarantee $306 billion of troubled Citigroup Inc. assets and Democratic lawmakers pledged to pass an economic stimulus package by January.

Citigroup, which lost more than 60 percent of its market value last week, rebounded 56 percent after the Treasury Department also agreed to inject $20 billion into the bank. JPMorgan Chase & Co. added 7.5 percent and Bank of America Corp. rose 13 percent as the guarantee eased concern that a flight of depositors might destabilize Citigroup, which has $2 trillion of assets. Intel Corp. and Alcoa Inc. climbed after Senator Charles Schumer said the stimulus plan may approach $700 billion.

The Standard & Poor’s 500 Index added 2 percent to 815.86 at 9:34 a.m. in New York, its first back-to-back gains this month. The Dow Jones Industrial Average climbed 120.59 points, or 1.5 percent, to 8,167.01. The Nasdaq Composite Index rose 1.9 percent to 1,411.09. Europe’s Dow Jones Stoxx 600 Index increased 4.7 percent, while the MSCI Asia Pacific Index slipped 0.5 percent.

“Job one is to continue to repair the psychology of this market, and the bailout or the help for Citigroup is an important part of that puzzle,” James Dunigan, managing executive for investments at PNC Wealth Management in Philadelphia, said on Bloomberg Television. PNC Wealth Management oversees $63 billion.

Citigroup Rallies

The S&P 500 rallied 6.3 percent on Nov. 21, paring a third straight weekly decline, after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner as Treasury secretary. The index has tumbled 44 percent this year and closed at an 11-year low on Nov. 20 after almost $1 trillion of financial-company losses caused corporate profits to decrease for five straight quarters.

Citigroup climbed $2.11 to $5.88 today. The cash injection from the Treasury adds to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The Treasury, Fed and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial- market stability and help restore economic growth.

‘Main Focus’

“With Citigroup hanging in the low single digits, the market was calling for either a breakup or some kind of resolution,” said Jack Ablin, who helps manage about $60 billion as chief investment officer of Harris Private Bank in Chicago. “This is going to be the main focus of market activity. It should be good news.”

Concern Citigroup may need a government rescue sent bank stocks down 24 percent last week, the steepest slide in at least 19 years.

Citigroup Inc. Chief Executive Officer Vikram Pandit told employees he doesn’t plan to break up the company, aiming to reassure workers as the stock resumed a skid that has erased more than half its value in three days.

Pandit and Chief Financial Officer Gary Crittenden, speaking on a worldwide conference call this morning, also said they don’t expect to sell the Smith Barney brokerage unit, said two people who listened to the call and declined to be identified because it wasn’t open to the public.

The call came as Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, prepared to meet today at the bank’s headquarters in New York, said a person familiar with the company’s plans who declined to be identified because the deliberations are private. Bischoff, interviewed at a conference in Portugal today, declined to comment on any potential changes to the board.

“It’s unclear what Citigroup can do in the near term to restore confidence,” Jason Goldberg, an analyst at Barclays Capital in New York, wrote to clients today. Prior to the collapse of Wachovia Corp. and Washington Mutual Inc., their tumbling shares triggered deposit outflows and rating-agency downgrades, he wrote. “The market may be implying some sort of regulatory intervention.”

`Dead Bodies’

Citigroup shares dropped $1.10, or 23.4 percent, to $3.61 at 2:29 p.m. in New York, giving the company a stock market value close to $21 billion.

Once the biggest U.S. bank, with a market value of $274 billion at the end of 2006, Citigroup has now slipped to No. 5 behind Minneapolis-based U.S. Bancorp. A plan by 51-year-old Pandit this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn’t assuage shareholders’ concern that bad loans and securities writedowns may extend a year-long run of net losses totaling $20 billion.

“Investors right now aren’t convinced that we’re done seeing dead bodies on the Citigroup balance sheet,” said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn’t own Citigroup shares. “That’s what the sell-off is, concern over more and more losses over the next couple of quarters.”

TARP Funds

Citigroup spokeswoman Christina Pretto declined to comment on the board meeting. She reiterated a statement made by the New York-based company earlier this week that it has “a very strong capital and liquidity position and a unique global franchise.”

Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital above the amount required by regulators to qualify as “well capitalized.” Capital is the cushion banks must keep to absorb losses and protect depositors.

Deutsche Bank AG analyst Mike Mayo wrote in a report today that the bank’s $25 billion of reserves, when combined with other resources, “should be enough to cover estimated cumulative losses of $50 billion on loans.”’ Mayo rates the stock “hold” and has a $9 price target.

Citigroup is so integral to the global financial infrastructure that the U.S. government isn’t likely to let the bank collapse, said Barry James, president of James Investment Research Inc., which manages $1.75 billion in Xenia, Ohio. He doesn’t own Citigroup shares.

`Throwing in the Towel’

“Why would you want to sell if you know you can live through the crisis?” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. “If I were Vikram, I’d probably turn to the board and say, `Let’s wait until January and see if the pressure comes off.”’

The company’s shares fell 26 percent in New York trading yesterday to close below $5 for the first time since 1994.

“What you’re seeing here is more emotional selling, more people throwing in the towel and they are throwing everything out, not just Citi,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn’t own Citigroup stock or debt.

Pandit was appointed last December to succeed Charles O. “Chuck” Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford “Sandy” Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.

Deposits Are Safe

Bischoff, 67, was Citigroup’s top executive in Europe until he was named chairman when Pandit became CEO.

Bank employees have been telling customers their deposits are safe, and so far corporate clients haven’t moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren’t authorized to speak publicly about the accounts.

Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.

`Non-Core’ Units

The bank may try to sell “non-core” units, similar to the divestiture earlier this year of retail-banking operations in Germany and Citi Global Services Ltd., an Indian unit that processes transactions and provides other “back-office” services, Optique’s Fitzpatrick said.

Morgan Stanley isn’t in talks about a merger with Citigroup, according to a person at the New York-based investment bank who declined to be identified because the company doesn’t comment publicly on potential deals. Morgan Stanley has said it plans to build its retail banking business and its brokerage division, which competes with Citigroup’s Smith Barney.

Citigroup executives who spoke on condition of anonymity because they weren’t authorized to comment publicly said they felt besieged by negative rumors propagated by short sellers betting on a decline in the share price.

Bank officials have discussed with the U.S. Securities and Exchange Commission and lawmakers the prospect of reviving a prohibition on short-selling financial stocks, according to a person familiar with the matter.

Costs for bad loans have almost doubled in the past year to $9.07 billion in the third quarter, and Pandit told employees Nov. 17 that net credit losses in the banks’ consumer divisions may be as much as $2 billion per quarter next year. The cost cuts announced this week may save about $2 billion per quarter.

Pandit and three deputies who bought about 1.3 million Citigroup shares last week in a show of confidence already are sitting on paper losses. Pandit bought 750,000 shares at an average price of $9.25 apiece. At yesterday’s closing price, they’re worth about $3.41 million less.

Parsons, the 60-year-old lead director and chairman of Time Warner Inc., bought 35,000 shares this week for an average price of $8.15, Citigroup said yesterday in a regulatory filing.