May 10 (Bloomberg) -- Citigroup Inc., the world's biggest financial-services company, will set aside $4.95 billion in the second quarter for legal costs that include settling claims it hid risks to investors who bought WorldCom Inc. stock and bonds.

The charge will help cover a payment of $2.65 billion, or $1.64 billion after-tax, to investors in WorldCom, which filed for bankruptcy in 2002. The rest will go toward settlements of suits by investors in failed energy trader Enron Corp. and other claims, the New York-based company said in a statement.

Citigroup stock fell the most in more than a year, dragging down shares of companies such as J.P. Morgan Chase & Co. amid accusations they too concealed WorldCom's health while helping it raise money from investors. Chief Executive Officer Charles Prince said Citigroup faced claims seeking $54 billion in the WorldCom lawsuit.

``We made a $1.64 billion insurance policy to avoid a roll of the dice in front of a jury,'' Prince said on a conference call with investors. ``We want to put the entire era behind us.''

The settlement is the second-largest involving securities litigation, New York Comptroller Alan Hevesi said at a news conference. Hevesi was the lead plaintiff in the lawsuit against Citigroup, and said lawsuits still are pending against J.P. Morgan, Bank of America Corp., Deutsche Bank AG and 14 other securities firms.

Citigroup Shares

Citigroup shares fell $1.46 to $45.26 as of 11:54 a.m. in New York Stock Exchange composite trading. Earlier, they fell as much as $1.72, or 3.7 percent. The stock, which has fallen 7.2 percent this year, still is below its peak of $55.14 in September 2000.

Saudi Prince Alwaleed bin Talal, Citigroup's largest individual shareholder, said Prince and Citigroup Chairman Sanford Weill called him this morning and he told them ``I'm backing them all the way.''

``If this was to go to court it would be so big, God help us,'' Alwaleed said. ``The trend in the U.S. and New York is against corrupt practices. Look at Martha Stewart.''

Stewart, best known for doling out advice on cooking and domestic affairs, was found guilty of trying to impede a probe of her share sales in biotechnology company Imclone Systems Inc.

Alwaleed said Citigroup's stock price is ``ridiculously low,'' and that he planned to buy more shares.

Some Citigroup shareholders said they backed Prince's decision to resolve the WorldCom litigation.

Avoiding Headlines

``This action goes along with Prince's overall strategy of not being in the headlines,'' said Hilary Hayes, who helps manage 2 million Citigroup shares at Victory SBSF Capital Management, which has about $4 billion in assets. ``The litigation environment has gotten much worse, and the company made a decision to put WorldCom behind it.''

The amount of money being set aside for legal expenses, which will lower earnings this quarter by 95 cents a share, is more than Citigroup earned in any quarter last year. The company had a record profit of $5.27 billion, or $1.01 a share, in the first quarter of 2004.

Citigroup also took a $1.3 billion after-tax charge, or 25 cents a share, for a reserve to pay for a settlement with regulators and related civil litigation as well as private lawsuits related to its role in Enron's collapse in Dec. 2002.

Citigroup's settlement ranks second to Cendant Corp.'s payment of $2.85 billion to end investor claims of securities fraud.

Settlement of the WorldCom litigation applies to investors who acquired stock and bonds between April 29, 1999, and June 25, 2002.

To contact the reporter on this story: Eric Moskowitz in New York emoskowitz@bloomberg.net .