Citigroup's Pandit: We Will Not Sell Smith Barney

As Citigroup officials continue to weigh their options, Chief Executive Vikrum Pandit said he would like to keep the company together and does not wish to spin off its Smith Barney brokerage unit.

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Pandit's comments came during a morning conference call with his staff. During the call, Pandit said "rumor mongering is at the heart of our problems," and he reiterated that Citigroup's capital position is very strong.

With Citigroup shares plunging below $5 a share on Thursday for the first time in 13 years, pressure is mounting, and could ultimately result in Pandit stepping down because of the lack of confidence in his ability to lead the firm through these troubled times.

By falling below $5, many mutual funds and institutional investors -- in particular pension funds -- must unload shares of Citigroup to comply with investment guidelines.

Senior officials at Citigroup have told CNBC that they will have to make a strategic change in the firm's direction, including finding a possible merger partner or raising cash in the coming days to arrest the sharp slide in the firm's stock price.

A Citigroup spokesman had no comment, but investment banking sources say possible partners could include Morgan Stanley , Goldman Sachs or State Street Bank .  Both Goldman and Morgan have recently switched over to banking holding companies so they could collect deposits. But finding a possible partner would be difficult in an environment where every major firm is reeling from the credit crunch and has its own set of problems.

Citigroup's has been reeling on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and add deposits.

Citigroup says its capital position is strong but acknowledges that the market appears to want to bank to raise more cash. Officials inside the bank denied speculation that Citigroup might approach the U.S. Treasury for more money from the $700 billion Wall Street bailout fund.

On Thursday, Citigroup officials began pushing SEC officials to reinstate the so called uptick rule, which made it more difficult for professional investors known as short seller—who make money betting that shares will decline—to short Citigroup stock.

(Citigroup's board meets today to discuss the bank's options. Watch the accompanying video for more...)

Citigroup's shares may be tumbling, but Ladenburg Thalmann's banking analyst Dick Bove said he does not see any reason for Citigroup to follow the path of Lehman and fail. Bove maintained his "buy" rating on the stock on Thursday.

The current decline in the stock price is reflecting a series of fears related to loans and security values that cannot be actualized without a severe setback in the economy and a very rapid increase in interest rates, Bove said.

Citigroup has access to U.S. Federal Reserve funds, is working at insuring some of its debt and is reducing its balance sheet faster than any other company in the banking industry, said Bove, who believes these steps backstops the bank's liabilities.

"It would take a Depression every bit as large and long as the 1930s debacle to shake this company's viability," Bove said.

Citi Presses to Bring Back Short-Selling Ban

As part of its efforts to curb the rumor-mongering it alleges is hurting its stock, Citi has told members of Congress to address short-selling, people familiar with the matter told Reuters.

The Financial Services Roundtable, an industry group, is also pressing for regulators to temporarily bring back the emergency ban that ended on Oct. 8.

The group, which represents most of the largest banks, brokerages, asset managers, and insurance companies in the United States, has been talking to securities regulators and others about reinstating the ban since it was lifted, said Scott Talbott, senior vice president in government affairs in Washington, DC.

Those efforts have increased in recent days as financial stocks have plummeted, Talbott said.  "When conditions warrant, you want to prevent a downward spiral for shares. Investors are acting on panic now," he said. 

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If financial stocks were reaching irrationally high levels, the group would seek measures to rein them in, Talbott said. "We want markets to operate efficiently," he added.

Short-sellers borrow stock they expect will fall in price in the hope of repaying the loans for less and pocketing the difference. They have been blamed by some corporate executives for driving down the price of their companies' stock.

John Nester, a spokesman for the SEC, declined to comment. The agency separately announced on Thursday that it will hold a teleconference of international securities regulators next week to discuss short selling, among other topics.

—Reuters contributed to this report.

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