Nov. 20 (Bloomberg) -- Citigroup Inc., which fell 26 percent in New York trading today, is seeking to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter. The Wall Street Journal said Citigroup is considering a sale of the company.

The New York-based bank has discussed with the Securities and Exchange Commission and lawmakers its proposal to reinstitute the ban on bets that stock prices will fall, said the person, who declined to be identified because the discussions weren’t public. Citigroup declined $1.69 to a 15-year low of $4.71 on the New York Stock Exchange at 4:15 p.m.

Buffeted by four straight quarterly losses, New York-based Citigroup has raised about $75 billion since December by selling assets and equity stakes, including a $25 billion injection from the U.S. Treasury. The government will do whatever it takes to stabilize Citigroup, including pouring more money into the company, because of the threat its failure would pose to the global economy, said Peter Wallison, a fellow at the Washington- based American Enterprise Institute.

“There is no question that Citigroup will not be allowed to fail,” said Wallison, who was Treasury Department general counsel under former President Ronald Reagan. “I would not think it is a good idea to restore the ban on short selling,” he said.

Considering Sale

Citigroup’s executives are considering selling off pieces of the bank or the whole company, the Wall Street Journal reported, citing people familiar with the matter. Talks are preliminary and don’t suggest Citigroup is backing away from its insistence that it has sufficient capital and funding, the Journal said.

The bank isn’t seeking government financial aid, Reuters reported today, citing an unidentified person close to the company. Citigroup may try to find a merger partner or raise cash, CNBC said on its Web site, citing senior officials it didn’t name. Morgan Stanley, Goldman Sachs Group Inc. and State Street Bank are among the possible partners, CNBC said.

Citigroup has lost about $20 billion in the past four quarters as bad loans increased and demand for banking services declined. Chief Executive Officer Vikram Pandit said this week the company will cut 52,000 jobs in the next year to lower costs.

SEC spokesman John Nester and Citigroup spokesman Michael Hanretta declined to comment.

The short-sale ban, which affected shares of 964 companies, lapsed Oct. 8. The SEC instituted the prohibition in September after Morgan Stanley Chief Executive Officer John Mack and lawmakers including New York Senator Hillary Clinton blamed short sales for driving companies to the brink of collapse.

‘Uphill Battle’

Hedge funds opposed the restriction, arguing that poor management and an over-concentration in mortgage securities were to blame for declines in financial companies’ stock prices.

“It’s an uphill battle to have the ban re-enacted,” said Scott Talbott, a senior vice president of government affairs for the Washington-based Financial Services Roundtable. Talbott said his group, whose members include Citigroup, has urged lawmakers and regulators to bring back the prohibition on a temporary basis.

Share volatility increased as the ban hampered trading, Nasdaq Stock Market data show. The difference between bids and offers, a measure of trading cost for investors, more than doubled and was almost 60 percent higher than the average for stocks exempt from the restriction.

Pressure on SEC

The SEC has also faced pressure to bring back the so-called uptick rule, which allowed short sales only if a preceding trade boosted a company’s stock price. The regulator’s decision to scrap it in June 2007 has contributed to investors “losing confidence in the integrity of our markets,” law firm Wachtell, Lipton, Rosen & Katz said today in a memo to clients.

The agency has countered that it extensively studied the rule, which was imposed after the Great Depression, and found it was no longer relevant to electronic markets.

“The SEC staff and most of the commissioners do not appear to support a return to an uptick rule, nor do the other U.S. exchanges or a majority of the leading market participants,” NYSE Euronext CEO Duncan Niederauer said in a letter to NYSE listed companies last month.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: November 20, 2008 20:39 EST