Citigroup Inc. Chief Executive Charles Prince graduated from law school in 1975, just months before the release of the pop-disco smash Right Back Where We Started From.

Longer-term investors in shares of the largest U.S. bank may be singing that same tune when they look at the stock price now.

Citigroup shares fell as low as $46.50 on Thursday, just 2.2 percent above their $45.51 level when Prince became chief executive in October 2003 -- though the bank's $2.16 annual dividend offers a cushion. The shares closed Friday at $46.97.

Investors worry that deteriorating borrowing conditions will saddle lenders -- and not just Citigroup -- with too many soured home loans and higher-risk bridge loans used to help fund corporate buyouts.

Citigroup's 7.4 percent share price decline this week extinguished the halo the bank got a week ago from better-than-expected quarterly results, as revenue rose faster than expenses and international operations shone. This appears to have helped ease pressure on Prince from investors disappointed with the bank's performance.

They had a great quarter, they really did, said Ralph Cole, a portfolio manager at Ferguson, Wellman Capital Management in Portland, Oregon, who plans to keep his 625,000 Citigroup shares after considering a sale earlier this year. People are concerned there is a bridge loan or some unknown out there, and because Citigroup's tentacles are so big, there's a better chance they're involved.

Many rivals also hit 52-week lows Thursday, including Bank of America Corp, JPMorgan Chase & Co, Bear Stearns Cos and Morgan Stanley. The Standard & Poor's 500, in contrast, remained more than 16 percent above its 52-week low.

Compared with main rivals Bank of America and JPMorgan -- whose shares fell a respective 1.9 percent and 7 percent this week -- the ratios of Citigroup's stock price to book value and expected earnings are higher. In Citigroup's case, they are 9.3 times projected 2008 profit and 1.8 times book value.

Valuations of the group start to look interesting at this point, said Mark Batty, an analyst at PNC Wealth Management in Philadelphia, which invests $77 billion.

Cole, whose firm invests $2.7 billion, added: Today's concerns about liquidity reflect the environment as a whole more than Citigroup itself.

PATIENCE

Citigroup said leveraged and high-yield lending accounted for 5 percent of securities and banking activity last year. The bank said it was handling four transactions as of June 30 that had to be repriced, and said others will have to be, too.

The bank isn't alone in getting stuck with hung loans, as bankers call them. We're involved in a couple, and that's life, JPMorgan Chief Executive Jamie Dimon said on July 18. We think the loans themselves are good, so we obviously are going to pay a lot of attention.

Market conditions have deteriorated since Prince's much-repeated July 9 comments to the Financial Times that Citigroup was still dancing in the leveraged loan arena. Still, Citigroup said it can ride out the storm.

In anticipation of syndicating the loans we have underwritten, we are comfortable with the credit quality, Chief Financial Officer Gary Crittenden said Friday on a fixed-income investor call.

Private equity has been an enormous engine of growth for us and for the industry in general, and there (are) still very large pools of liquidity out there that may very well find a home, he said.

Patience may be needed. Investors on Thursday demanded an extra 4.13 percentage points of yield over U.S. Treasuries to take a typical junk bond, a level not seen since June 2005, according to Merrill Lynch & Co. data. The 8.90 percent average junk bond yield is the highest since September 2003.

We think the backdrop looks fine for the global economy; the question is whether fixed-income investors step up to the plate, Batty said.

Goldman Sachs, Merrill Lynch and others all play in the same space, he added. Citigroup is a high profile, and very liquid name, so perhaps that's why some investors lean on the stock. Time will tell.

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