A report by Calyon Securities analyst Mike Mayo two weeks ago also shook confidence in the firm. He thinks that Citigroup faces possible fourth quarter write-downs of $10 billion.

Despite receiving criticism about his viewpoint, Mayo reiterated his feelings on Thursday.

“Based on the amount of negative evidence that exists, we believe a write-down cannot be ruled out and, because the bank has cumulative losses in recent years, it has to shoulder a particularly heavy burden,” he wrote.

Mayo is basing his analysis on Citigroup’s position with deferred tax assets.

When the report first emerged in October, it was shrugged off by C officials.

“We have no idea how any analyst could have come to this estimate,” said company spokesman Steve Cohen at the time.

Now some investors might be worrying just what problems are right below the surface as Citigroup attempts to repay the government for its huge bailout funds and to return to profitability. There’s no question the company is under more public scrutiny that ever before, so any write downs they make for tax purposes will be closely scrutinized.

C is still facing enormous pressure due to the depressed housing market and increased unemployment. They have amassed a staggering $240 billion in cash as the prepare their loan loss reserves for more stunning losses. Cash hoards help with stability, but do little to increase growth.

If the economy remains stagnant, it’s hard to picture Citigroup stock going much higher in the near term. But for many people holding since $2.80 or so a share, it’s probably worthwhile to continue to hold, unless extremely bad news hits the wires.

The recent news comes as Fannie Mae announces they lost a staggering $18.9 billion in the latest quarter. That’s $4 billion worse than the prior year quarter.

If the Treasury Department gives FNM the $15 billion, it will be the fourth time the mortgage lender has tapped the system.

The money paid to FNM is huge. They has so far received a total of $44.9 billion in federal government assistance, under a senior preferred-stock purchase agreement.

Fannie Mae’s Deed for Lease Program is expected to help stabilize the U.S. housing market. Most of the borrowers who are eligible for the program have mortgages that are “underwater.” This will help them stay in their homes for the time being, and will allow Fannie Mae to receive some income.

In related news, the company also said it plans on selling $2.6 billion in unused tax credits. Share prices have dropped 10% in pre-market trading.

The company will trade with the stock symbol ACOM.

The money will be used by the company to repay debts and to look for potential acquisitions which could strengthen their market position.

As part of their IPO, company officials stood on the podium at NASDAQ and rang the opening bell.

Ancestry.com has been around since 1983 and boast being the world’s largest destination website for family history buffs, with over 1 million subscribers. The company is based in Provo, Utah and was acquired by Spectrum Equity Investors in December 2007 for $354.8 million.

The company is having a solid year as it revenues have increased 13% to $107.8 million. Ancestry.com says subscriber growth is strong, fueling top line growth.

The payments were made as part of a program called ‘MOAP’ (Mother of all Programs) and later ‘MCP’ (Meet Competition Payments).

According to New York Attorney General Andrew Cuomo, these payments represented illegal rebates that helped Intel become a monopoly in the computer CPU market. Cuomo also alleged that these payments prevented Intel rival Advanced Micro Designs from making headway in the competitive world of PC manufacturing.

The charges by Cuomo mirror earlier allegations by the European Union. They charged Intel $1.45 billion for illegal rebates to Hewlett Packard and Dell.

Currently Intel says they did nothing wrong making these payments. Dell may be even more troubled by the scandal, considering the company has stated that they will be unable to meet their financial targets unless the payments from Intel are received.

Whether Citigroup stock is a good investment or not could largely depend on your investment aims and your planned holding time.

For short term traders, it looks like C could be “dead money” for the immediate future. A big concern is that the bank company, like all the other majors, is hoarding cash. This concerns investors because it means they have a large amount of capital under management that is being set aside for liquidity requirements, and it won’t be earning a high rate of return. Considering the poor job C has done lending money in recent years, some speculators might actually think it’s a good thing the company isn’t just lending it out, with no hope of getting it back. Still and all, a bank company that doesn’t lend won’t earn.

The fact that loan quality is still such a big worry even after the “financial crisis” has continued on for over a year is also a concern. Just how many bad loans did this company make, one wonders. Not only that, but if the overall economy deteriorates, the rate of defaults will increase as well. This means more losses could mount.

Long term the prospects look a bit better. The fact the company has so much cash on hand means the financial strength of the firm is improving. A worldwide iconic banking firm like Citigroup is nothing without the air of invincibility that huge cash reserves bring. Citigroup has suffered a lot in the way of prestige in the last year, so battening down the hatches to survive any further financial storms certainly seems sound.

Investors who go long C are likely to believe in the job that CEO Vikram Pandit has done at the helm. Some worry that Pandit is unfocused for his strategy for recovery. When he makes comments like the following, you can understand the confusion.

“Our distinctiveness is we connect the world better than anyone else. We have a great capability of building a business around that. And we are in the process of building a culture around that,” he told the New York Times.

That’s not exactly comforting for those of us who would like to see the company focus on its retail banking operations. These are the bread and butter for profits for any lending institution. Citigroup still has an immense network of ATMs and branches that can generate enormous profits, but one wonders if the company is executing a clear enough strategy for recovery.

When you add in the fact the C still has to answer to the U.S. government for many of its decisions, it’s not hard to see why many investors took profits when the shares hit $5 and don’t seem to be coming back as rapidly as they left. Until they feel many of the fundamental problems of the company are solved, they will continue to fear putting the hard earned money into an investment in C stock.

Are you holding C stock? Are you short? Let us know your thoughts on your current philosophy for Citigroup investing.

C shares were as high as $5.00 in the last month, but have currently fallen out of favor with investors who fear the company is trading at adequate levels.

Right now, lending to qualified borrowers is low. That’s the business that Citigroup needs in order to start earning major profits. Instead of lending, C is hoarding cash.

Citigroup has raised its current liquidity to $450.3 billion, which is 24% of assets. Citigroup has a remarkable $245 billion of cash on its balance sheets.

The hoarding of so much cash has raised a red flag for investors who were considering putting money into the once high-flying bank company. Certainly the holding of cash helps with the financial position of the company, but it doesn’t do much for profits. Without profits, investors can’t expect to get a decent return on their investment.

Citigroup is not the only major bank to increase liquidity. Rivals JP Morgan Chase, Wells Fargo, and Bank of America have also increased their liquidity by 67% since September.

The main trouble with hoarding cash is that it isn’t being used to earn a return. The good part is, though, that you can’t lose money on cash you’re holding the same way you can by lending it out improperly.

Federal regulators want the major banks to hold higher levels of cash at least until the financial crisis has “officially ended.”

The Milwaukee-based firm received $1.7 billion earlier this year from TARP.

M&I plans to sell 136 million shares at $5.75 each, which will raise a total of $782 million. The equity markets seem to be responding positively to moves of this nature. M&I did a similar offering in June that resulted in $500 million of capital. The moves are designed to bolster investor confidence in the financial condition of the bank.

Marshall & Isley appears confident about demand for the transaction. They have already authorized their underwriters to be ready to issue up to 20.4 million more shares if demand exceeds initial supply. If these shares sold, an additional $117.3 million could be brought in.

The bank company operates 375 banks and has been suffering from loan losses, like most of its rivals. Analysts think the new moves will help shore up significant financial difficulty for the company, which lost $248.4 million in their last quarter.

The price of C shares has stayed relatively stable recently, at around $4.50 per share as investors weigh different scenarios for the company’s future.

On the one hand, people putting money into the company figure they’re getting their hands of shares of a company that once ruled the entire global financial market and still has a ton of great assets.

On the other hand, investing in Citigroup could become very dangerous. The company is extremely reliant on its huge portfolio of loans, and bad results could doom the company’s earnings. That’s why investors are concerned about Citigroup’s recent moves concerning loan losses.

In the latest reporting period, C built its loan loss reserves by $802 million. This was far less than the $3.9 billion they added for the prior quarter. Certainly the company isn’t expecting that vast of an improvement in loan repayments?

Evidence would suggest the contrary.

Non-accrual loans hit a remarkable $32.68 billion during the recent period. Non-accrual loans are loans that are not being paid the original, agreed-upon contractual interest rate. How much of this amount represents truly dead loans that will never be repaid remains unknown, but the amount must be huge.

Unemployment has stayed high, which is keeping investors being euphoric about C. If job losses stay high, loan repayments remain low. With the the numbers of loans that are not performing already so massive, can Citi really afford too many more bunk loans?

Citi is hoping that loan modifications will bring many of these debts bank from the brink. But if industry wide stats are to be believed, 75% of people who do a loan modification end up back in the soup within 12 months. Not exactly the type of success rate anyone wants to bet the bank on.

It seems that C shares could continue sideways for quite some time as investors watch and learn more about how the modifications are working for Citi. If they end up improving substantially, lots of folks might suddenly feel the urge to buy shares.

Lewis, who has been CEO of Charlotte-based Bank of America will step down on December 31, 2009. He’ll take $68.8 million with him. That’s money he’s accumulated in 40 years with BAC and its predecessors. Despite the fantastic personal financial windfall, his time at the helm of the company in recent years has been rocky.

Things took a turn for the worse when Lewis preceded over the government-pushed Merrill Lynch takeover. His integrity came into question, along with his stewardship of the giant bank holding company when losses mounted during the midst of the financial crisis.

Even his retirement is not without controversy. There is concern whether Lewis is leaving fast enough. Company officials are worried that If he suffers new legal problems, he may be asked to step down faster, and this could cause a void in leadership at BAC, because his successor has not yet been chosen.

The company has now appointed six directors who will beging searching for Lewis’ permanent replacement.

Lewis’ reign will be remembered for the Merrill Lynch controversy, which is not even close to dying down. He served Bank of America since 1969, first when the company was NCNB, then when it became NationsBank, which went on to become Bank of America. The company he’s leaving in 2009 is far different than the one he joined in 1969, due in no small part to his efforts.

Now the future of BAC remains uncertain. Even the executive search is somewhat shrouded in mystery because investors are unsure of the role that will be played by government regulators. Will they conduct the search themselves? Will they veto any candidates? And what will they do to limit executive compensation? None of these issues are yet resolved, and all of them promise to add to the uncertainty of BAC’s future.

Lewis offered no apologies for his tenure when he announced his retirement.

“The Merrill Lynch and Countrywide integrations are on track and returning value already. Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company’s history. We are in position to begin to repay the federal government’s TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America,” he said at the time.

One thing seems certain, Bank of America without Ken Lewis promises to be a very different company than he one he helped build.

“It wasn’t up to me,” Mr. Lewis said under oath. He further pointed out that Bernanke and Paulson had urged him to keep quiet about the deal. Lewis said that both of the financial heavyweights urged him to keep silent because not doing so could “impose a big risk to the financial system.”

Later Lewis and Bank of America came under fire due to the enormous bonuses paid out to Merrill Lynch executives and the fact that the deal resulted in another $20 billion of “bailout money” going to BAC. Lewis admitted that taking such a huge sum of money from TARP to finance the deal was a “tactical mistake.”

Of course it’s a mistake the Charlotte, North Carolina-based bank company will be living with for quite some time. It’s estimated that BAC will take at least three years to repay the $45 billion they received from TARP. Of course continuing credit losses could make that target date unrealistic.

Like it’s other major competitors, Bank of America has been suffering from massive credit losses that don’t seem to end. Not only that, the company has been forced to lower credit lines to existing accounts, and effectively “circle the wagons” as far as lending goes, in order to stay solvent. When you consider that Bank of America also swallowed Countrywide during the height of the financial crisis, you realize that this is one company that is widely exposed to huge levels of credit risks, both from consumer and business customers. During all of this, one has to question just how the Merrill Lynch deal fits into the larger corporate strategy of BAC. The deal hasn’t appeared to be a good for anyone involved.

Even Hank Paulson was called into question concerning his role in the deal. House Committee on Oversight and Government Reform Committee Chairman Edolphus Towns grilled Paulson, the former U.S. treasury secretary over his involvement.

“While all this was going on, the American people, investors and Congress were kept in the dark,” the Democrat from New York asserted.

“What the taxpayer got was an averted calamity,” said Paulson.

These are not exactly ringing words of endorsement.

Now the question remains, can the deal end up being a positive one for BAC?

Almost everyone agrees that Bank of America paid too much for Merrill Lynch, but that doesn’t necessarily mean it will end up being a bad thing in the end.

Recent estimates said that the businesses from Merrill Lynch produced $20.9 billion during the first six months of 2009. Those are relatively eye-popping numbers concerning the current financial client.

With revenues drying up in traditional credit products, BAC might end up needing the growth of Merrill’s product lines to offset losses in revenue and profit. If the growth rate is good enough, the deal could still end up being a good one.

Right now it seems the deal injured the prestige of Bank of America, Paulson, Bernanke, and Kenneth Lewis. It also cost taxpayers a lot of cash that is not yet paid off. But in the end, if things work out well, the affect on share price could be substantial and profitable.

For this reason alone, potential investors will be looking closely to the numbers to see if this ugly duckling deal eventually turns into a beautiful swan.