NEW YORK (Reuters) - Citigroup Inc lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor.

Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup, the No. 2 U.S. bank by assets, to 5 percent from less than 4 percent, calling its shares “dramatically undervalued.”

Alwaleed expressed “full and complete support” for bank management, including Chief Executive Vikram Pandit, who said this week the bank will slash 52,000 jobs and 20 percent of expenses.

Investors were unimpressed, and on Thursday drove the bank’s shares down below $5, a level not seen since 1994. The market value of Citigroup has fallen $48.7 billion this month alone.

Citigroup is not seeking any government financial aid, and is not seeing any unusual business activity, a person close to the bank said.

Analysts said the bank could face more than $20 billion in losses in 2009 on commercial real estate, credit cards and emerging markets, as the world economy sinks into recession.

Some investors have said the government might have to step in, perhaps augmenting the $25 billion it injected last month from a $700 billion industry rescue package. The bank has raised another $50 billion since the middle of 2007.

“How much capital is Citi going to need?” said Keith Davis, a bank analyst at Farr, Miller & Washington in Washington, D.C. “I don’t think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later.”

Citigroup shares closed down $1.69, or 26.4 percent, at $4.71, with volume topping 723 million shares. A Citigroup spokeswoman declined to comment on the share price.

The bank has asked the U.S. Securities and Exchange Commission to reinstate a ban on the short-selling of financial stocks in an attempt to arrest their downward spiral, a person familiar with the matter said Thursday. A prior ban expired Oct 8.

Other banks’ shares also tumbled on Thursday, with JPMorgan Chase & Co falling 17.9 percent and Bank of America Corp closing down 13.9 percent. Along with Citigroup, the banks are components of the Dow Jones industrial average, which shed 5.6 percent.

JPMorgan is eliminating about 3,000 investment banking jobs, or 10 percent of that unit, to cope with the deteriorating economy, people familiar with the matter said. Bank of New York Mellon Corp announced 1,800 job cuts.

And KeyCorp, a Midwest regional bank, reduced its common stock dividend for the second time in six months.

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STABILITY ‘TOP PRIORITY’

Citigroup’s market value, which once topped $270 billion, fell to $25.7 billion on Thursday. The bank was overtaken in market value this week by U.S. Bancorp and Bank of New York Mellon, despite being more than four times larger by assets than those companies combined.

Five-year credit default swaps for Citigroup rose to 395 basis points, meaning it would cost $395,000 annually to protect $10 million of debt, according to Phoenix Partners Group. That’s up from $357,000 of annual payments on Wednesday, according to Markit.

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Earlier this year, the government has rescued giant insurer American International Group Inc and mortgage giants Fannie Mae Freddie Mac.

Citigroup “will get bailed out, and that’s another unfortunate strain on the U.S. government,” said Saj Karim, an investment adviser at Cannacord Capital in Waterloo, Ontario.

U.S. Treasury Secretary Henry Paulson declined to comment on Citigroup.

Despite its troubles, Citigroup is one of three final bidders, along with JPMorgan and Capital One Financial Corp for Chevy Chase Bank, a Bethesda, Maryland, lender with $11.4 billion in deposits, sources said.

Pandit suffered a setback last month when Wells Fargo & Co agreed to buy Wachovia Corp, trumping Citigroup’s bid to buy much of the Charlotte, North Carolina-based bank and add $418.8 billion of deposits.

‘LONG-TERM WINNER’

Alwaleed said the bank is “taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy.”

The Saudi billionaire, a nephew of Saudi King Abdullah, said he is “fully confident that Citigroup’s universal banking model and global franchise will make it a long-term winner in the financial services industry.”

Alwaleed also came to the bank’s aid in 1991, when he invested $590 million in Citigroup predecessor Citicorp, which at the time needed cash as it struggled with Latin American loan losses and a collapse in U.S. real estate prices.

Citigroup has lost $20.3 billion in the last year and taken tens of billions of dollars in write-downs on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don’t see any profit in 2009.

“We don’t see anything wrong from the point of view of liquidity,” said Standard & Poor’s credit analyst Tanya Azarchs. “We can see a fourth-quarter loss that could be getting worse because of events in the marketplace, but they are not alone.”

Citigroup’s potential losses could include a write-down tied to ailing bond insurer Ambac Financial Group Inc, which said Wednesday it ended two insurance contracts on collateralized debt obligations, paying 28 cents on the dollar. That could imply a $2 billion write-down at Citigroup.