April 30 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, fell in early New York trading after the company announced plans to sell $3 billion of stock to increase capital depleted by writedowns on subprime-related mortgages and bonds.

The shares will be sold in a public offering, New York- based Citigroup said in a statement yesterday. Citigroup dropped 3.4 percent to $25.42, adding to this year's 11 percent decline.

``We were hoping they wouldn't have to go the equity markets like this,'' said William Fitzpatrick, an analyst at Optique Capital Management in Racine, Wisconsin, which held more than 550,000 Citigroup shares at the end of last year. ``This was extremely disappointing.''

Citigroup already has raised more than $30 billion of capital since December, including the sale of equity to investment funds controlled by foreign governments in Abu Dhabi, Singapore and Kuwait. The company sold $6 billion of preferred shares, a bond-like security that isn't dilutive to common shareholders, last week after it reported a $5.1 billion first- quarter loss and cut 9,000 jobs.

Oppenheimer & Co.'s Meredith Whitney, who was one of the first analysts last year to predict the extent of Citigroup's losses, said the latest stock offering won't protect the company's finances against future losses.

``The fact that the company raised such a small amount of capital at this time confounds us,'' Whitney wrote. ``We believe Citi needs to raise an additional $10-$15 billion or sell several hundreds of billions worth of assets in order to truly shore up its capital position.''

Tier 1

The new equity, when combined with $6 billion of preferred stock, will raise Citigroup's so-called Tier 1 capital ratio to about 8.5 percent, the company said in yesterday's statement. The ratio, used to gauge a bank's ability to withstand loan losses, was 7.7 percent at the end of March. Regulators consider banks with a Tier 1 ratio of 6 percent ``well capitalized.''

Citigroup sets its Tier 1 target at 7.5 percent, to give itself a margin of error and help avoid a downgrade of debt ratings. When the company reported its first-quarter loss, Standard & Poor's said it was reviewing the bank's credit rating, currently AA-, for a possible downgrade. Rising consumer-loan delinquencies may force the bank to set aside higher reserves to cover bad debt, Standard & Poor's said.

`Capital Structure'

``We continue to optimize our capital structure,'' Chief Financial Officer Gary Crittenden said in yesterday's statement.

JPMorgan Chase & Co., the third-biggest U.S. bank by assets, and Merrill Lynch & Co., the third-largest securities firm, also have raised capital in recent weeks by selling preferred shares.

Chief Executive Officer Vikram Pandit and Crittenden said earlier this year that Citigroup might avoid the need to raise more capital. Crittenden said in January that the company had ``stress-tested'' assumptions under ``multiple recessionary scenarios.'' Then the bank posted its first-quarter loss and Crittenden was asked on an April 18 conference call with analysts if the bank might seek more capital. He said, ``You can never say never.''

Pandit said at the company's annual meeting last week in New York that ``2008 remains a challenging time for financial markets and, in general, for our entire industry.''

Citigroup has had more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year. The world's biggest banks have raised more than $170 billion in capital to replenish their coffers.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: April 30, 2008 07:33 EDT