Citigroup has a target for its headcount: about 50,000 less than it has now. Investors also have a target for the company’s share price: something less than what it is now.

After the company announced, in a town-hall presentation, plans for significant layoffs (it plans on headcount of about 300,000 in “the near-term,” down from 352,000, investors haven’t been buying it. Shares are down 0.5% Monday, a bit better than earlier in the session, but still short of a positive reaction. With the stock below $10 a share, many wonder whether this company will soon find itself merged into another institution, even though at first blush such an idea might seem ridiculous.

“Citi’s share price is a signal and it may become brighter and more troubling as the year moves toward a close,” writes Doug McIntyre, on 24/7 Wall Street.

Shares of the stock, headed into the day’s action, were down 73% on the year headed into Monday’s trading. Whether the augmented layoff plan serves as the kitchen-sink move the company needs to get ahead of its issues or not remains to be seen.

James Mitchell, analyst at Buckingham Research, notes that the company’s 2009 expenses are estimated at 13% to 17% below 2008’s estimated $60 billion. He says this would add $1 to $1.20 in earnings per share for 2009. “While the poor underwriting standards of the past few years needs to be worked through over time, this recent bout of expense cuts can get the company’s expense levels in line with its peers,” he writes. The company’s revenue-to-expense ratio was 71% in the third quarter, higher than rivals.

That’s something the company desperately needs, says Christopher Whalen, head of Institutional Risk Analytics. “These guys still believe that they can put Humpty Dumpty back together again and tough this out,” he says. “Their first issue is basic efficiency.”

A more charitable view comes from Glenn Curtis of Minyanville.com, who says that “I think many people have been waiting to hear some indication from Pandit that he’s serious about righting this ship. And this could be it.”

In an attempt to stem concerns among Citigroup Inc.’s employees amid a tough round of public criticism this week, Chief Executive Vikram Pandit has called a town hall meeting Monday.

In a memorandum to employees Friday afternoon, Mr. Pandit said he is “optimistic about the future” of Citi, and reassured that “capital is plentiful” and that the bank has “abundance of liquidity.”

“I want to talk with you about our accomplishments over the last eleven months and why despite the major challenges currently facing our industry and the economy I continue to be optimistic about the future,” Mr. Pandit said.

“Our revenue is strong and stable,” Pandit said in the memo, and reminded employees how much capital Citi raised through stock sales, business divestitures, and increased deposits.

“Let’s take firm hold of what we can control about Citi - the money we spend, the time we invest, the way we do business - and use them all to our advantage. By working smarter and more efficiently, we have the opportunity to build operating leverage and position us for sustained growth when the markets recover.”

Employees are able to submit questions in advance.

The town hall follows a bitter week for Citi. The bank’s stock fell below $10, The Wall Street Journal reported that some directors are growing impatient and are considering the replacement of chairman Sir Win Bischoff, and reports about continued layoffs in large numbers. Citi’s board has denied that it is looking for a new chairman.

Ed Welsch reports:

Another day, another analyst taking down their view on Goldman Sachs.

The investment bank turned bank-holding company was on the receiving end of another fourth-quarter loss prediction based on its exposure to declining global equity markets Tuesday, this time from Fox-Pitt’s David Trone. He expects that Goldman will post a loss of $1.55 a share — well off his earlier expectation for earnings of $2.59 a share — and a $2.7 billion write-down of its principal investment portfolio. Mr. Trone also chopped his price target on Goldman to $120 from $165. Right now, the shares are hanging around the $70 neighborhood.

Already, analysts at Merrill Lynch, Morgan Stanley, J.P. Morgan and Barclays Capital have predicted that Goldman will see its first loss since going public a decade ago.

Once again, market chatter is pushing around shares of prominent financial companies, namely Morgan Stanley and Goldman Sachs Group Inc.

What’s more surprising is that the broader market seems to be following the path of those shares, hitting its nadir when the rumors knocked those shares to their lows on the day, rebounding on reports that the talk was overdone.

Shares of Goldman Sachs and Morgan Stanley were hit earlier in the day and the companies’ credit default swaps, which measures the cost of insurance against default on debt, rose on talk that the firms were somehow looking at losses related to the vacillations in shares of Volkswagen, which soared in German trading.

Shares of Goldman hit a low of $82.24 during the day and were lately off 6.2% to $87.06 a share. Morgan fell to $10.15 a share, and was lately at $12.05 a share, off the lows of the day. “The market wants to go higher, but that was actually holding the market down,” says Todd Leone, head of listed trading at Cowen & Co.

The gains for Volkswagen raised concerns that the funds that shorted the stock would be hit with large losses, and that the brokerages involved would be exposed as well. After CNBC, citing sources inside the firm, reported that Goldman’s exposure was not significant, the shares rebounded, and the market regained some of its composure.

“When the market started expressing concerns about trading in those shares, that’s when the market sold off and it seemed that when those shares rallied the market started moving in tandem,” says Mike O’Rourke, chief market strategist at BTIG.

Geoffrey Rogow reports:

After last night’s mass declines in Europe and Asia, one popular trade collapsed at the open Friday.

In the weeks that have followed Treasury Secretary Henry Paulson’s comments that signaled he wouldn’t let another large bank fail, large institutional traders began doubling down on bets that large banks would skyrocket. At a time when almost everyone is deleveraging, several funds were in essence doubling their leverage on one trade.

As holding an equity position alone wasn’t enough, several trading desks were also writing credit-default swap protection on names like Goldman Sachs and Morgan Stanley because they believed the cost of protection on their debt was so high.

In the short term, it certainly worked. Goldman was up 22% and Morgan had risen 87% going into Friday’s session since Paulson’s Oct. 10 statement, while the CDS trade has made similar returns. CDS spreads on Morgan were recently trading at 450 basis points, or 4.5%. By ensuring about $10 million of Morgan debt, for example, the firm would earn $450,000 a year. The risk is that the firm would need to have the capital to cover the position should Morgan go out of business — and in the wake of Paulson’s comments, that was unlikely.

However, a funny thing happened on the way to gaining huge returns from a doubled-down bet: overseas markets tanked and investors were once again shaken to their core. At one West Coast hedge fund, phone calls came in hours before the opening bell from nervous investors on the other end of the CDS trade making sure the fund had the collateral to cover.

Unfortunately for the funds, most of their collateral on that trade was tied up in the large bank’s stock and thus traders had to liquidate somewhat on the equity side to post collateral on the CDS side. As a result, Goldman was recently off 10.4%, while Morgan has fallen 14%.

Still, Gary Kelly, who analyzes the relationship between credit default swaps and equity markets for broker-dealer Tradition Asiel Securities, said at current levels the trade remains hard to pull out of completely.

“So, if I thought Goldman was OK, and thought it had good cash flows and was secure, I can receive income by being prepared to secure protection for those who are concerned. You get paid a fee for offering that insurance and as long as Goldman didn’t go into default, you get a payout on the amount insured,” said Kelly.

Financials aren’t alone on this bet either. Kelly said several large oil and gas companies play in as well. For example, a trader can write protection on Exxon Mobil at 50 basis points, meaning if they were willing to insure $10 million, they would get $50,000 a year.

Merrill Lynch’s losses were ugly — but they could have been worse. The brokerage, set to be acquired by Bank of America Inc., would have lost more than $5.2 billion if it had not gotten a net benefit of $2.8 billion due to the declining prices of its own obligations.

This accounting-driven benefit is sort of the reverse of mark-to-market accounting. As Merrill Lynch’s credit spreads widened, it reduces the value of those long-term debt liabilities. Still, shares are off by 4.9% in what’s been a rough month for the brokerage firm and its acquirer. Merrill lost 28% headed into the day’s action, while BAC was off by 32%.

UBS analyst Glenn Schorr wrote in commentary that it looks like the company “took the opportunity presented by the BAC deal to clean up its balance sheet” in the third quarter.

It was the fourth consecutive quarter of losses for Citigroup Inc., but the company might catch a break from investors just for being “less bad” than the usual. Truth be told, expectations for the earnings report were all over the place, ranging from the best-case estimate of a 45-cent loss to a worst-case estimate of a $1.08-per-share loss.

The company reported a net loss of $2.81 billion, or 60 cents a share, compared with prior-year net income of $2.21 billion, or 44 cents a share. Revenue fell 23% to $16.7 billion. It wrote down an additional $4.4 billion in bad debts, characterizing the losses as the result of “the impact of a difficult economic environment and weak capital markets.”

The company is holding its earnings conference call, hosted by Gary Crittenden, chief financial officer. CEO Vikram Pandit is not on the call.

10:04 a.m.: The call is beginning. Mr. Crittenden is going through the slide presentation, highlighting the losses.

10:07 a.m.: The company’s net interest margin has improved in recent quarters — 3.14% in the second quarter, and 3.13% in the third quarter. At this time last year, net interest margin was 2.34%. Mr. Crittenden cites the Fed’s rate cuts, and it’s clear that the recent activity from the Fed should at least help banks get back to the business of borrowing short and lending long.

10:11 a.m.: “Sequentially, expenses declined for the third quarter in a row,” he says. In addition, year-over-year headcount fell by 5%. The company has cut, or will cut, 22,000 jobs in the last year.

10:14 a.m.: Total cost of credit increased by $4.2 billion, or nearly 50%, from the year-earlier period. This includes $1.7 billion for higher loan loss reserve builds and $2.5 billion in net credit losses. As unemployment has risen, net credit loss ratios have increased to a rate of 7.13% and are rising more quickly than in the 1991-1992 period. For the company’s North American credit-card division, and has risen to 2.16% for first mortgages. Mr. Crittenden says credit-card loss ratios could continue to rise in 2009, and he notes that mortgage-related losses may continue to rise, as they have “longer tails” — that is, it takes longer for those losses to play out.

10:21 a.m.: Much of the increases in net credit losses come from three countries — Mexico, Brazil and India — they’re responsible for 74% of the increase in net credit losses.

10:23 a.m.: The losses of the past quarter have again damaged the company’s Tier-1 Capital Ratio, a key measure of banking health. That ratio fell to 8.2% in the third quarter, down from 8.7% in the second quarter. Still, it’s an improvement on a year-over-year basis, from 7.3% for the third quarter 2008.

10:31 a.m.: The company took $800 million in write-downs in exposure to asset-backed commercial paper, and reduced subprime exposure to $19.6 billion from $22.5 billion. Total write-downs came to $1.7 billion, and the company also recorded sales, transfers or restructurings to the tune of $2.1 billion.

10:35 a.m.: The company’s direct subprime exposure breaks down as follows: $23.4 billion in asset-backed commercial paper, which has been marked down by 57% to a market value of $13.3 billion. The company also has $2.8 billion in high-grade subprime exposure, now worth $1.1 billion, and mezzanine debt, worth $1.7 billion (down from $8 billion). Mr. Crittenden’s voice is starting to become wearying.

10:40 a.m.: The company has taken significant marks on its exposures to structured investment vehicles (82%), commercial real estate (86%), and auction-rate securities (78%).

10:44 a.m.: Discussing continued volatility in fixed-income markets, Mr. Crittenden says the firm is “managing this by lowering our risk positions aggressively which has resulted in lower marks for the third consecutive quarter.” He mentions layoffs, but of course calls them by the unfortunate term, “right-sizing.”

10:46 a.m.: Time for questions! First up is John McDonald of Sanford Bernstein is first. He asks about the government’s preferred investments, and where that puts them in terms of the limit they can issue in such preferreds. But Mr. Crittenden says it’s a moot point because it factors into Tier 1 Capital.

He also wants to know about rising losses in credit due to where they’ve been growing fast and areas where economic stress are hitting credit losses. Mr. Crittenden refers to the slide presentation, saying credit was growing rapidly around the world, but he believes that most of the declines are economic-related. The losses are confined, however, to places like India, Brazil and Mexico. “There is some deterioration in credit broadly,” says Mr. Crittenden.