Many thanks to David Sunstrum, who put this chart together for me. The blue bar is Citi’s book value per share, as reported in the bank’s quarterly reports. It reached a high of $25.53 in the second quarter of 2007, and since then has fallen by 42% to $14.70. The fact that it’s still positive is what Jim Surowiecki is referring to when he says that Citi is "at the moment solvent from an accounting perspective".
The orange bar is where Citi’s share price closed on the day that the quarterly report came out. The ratio of the orange bar to the blue bar is Citi’s price-to-book ratio, and if the orange bar is smaller than the blue bar, that means the market is expecting further losses, and further erosion of the blue bar.
The problem is that the blue bar can’t fall much further, without Citigroup breaking minimum capital adequacy requirements. In fact, Citi is skating so close to its regulatory minimums right now that it’s almost impossible not to suspect that a large part of where it’s marking its assets is a function of where the CFO needs the company’s book value to be. (Which could also explain Merrill Lynch’s monster loss in Q4: since Merrill clearly couldn’t survive as an independent entity anyway, at that point it didn’t matter if it ran out of shareholders’ equity.)
And obviously the orange bar can’t fall much further, since share prices have a zero bound.
So what happens if this trend continues for just one more quarter? Maybe Tim Geithner knows; I have no idea.