I am viewing Citigroup’s plunge in share price with alarm.

Yesterday alone, the beleaguered financial giant slumped a record 23 per cent to US$6.40. This beat the 21.7 per cent drop it registered during the Black Monday crash in October, 1987.

Citigroup hasn’t had an easy time since it announced it was cutting 52,000 jobs earlier this week and reduced its workforce to around 300,000 worldwide.

Its management may have viewed the move as a much needed effort to cut costs amid mounting losses – but it sure isn’t giving investors much of the assurance they badly need. They are simply voting with their feet.

When a similar plunge in share price affected other US banks such as Washington Mutual or Wachovia, we had watched the unfolding drama with detached interest. Both institutions had little or no interest here.

But Citi’s reach is so pervasive and so inter-connected with our local economy that we have to sit up and take notice.

It is one of the largest employers in Singapore, with over 9,000 staff located here. It operates a big retail banking franchise and has an extensive lending programme – share financing, motor car loans, unsecured personal credit, housing loans and corporate lending - to the local community.

The chief executives of two of our local banks – DBS Group Holdings and OCBC Bank – are ex-Citibankers.

In January, the Government of Singapore Corporation (GIC) had invested US$6.88 billion in the bank via a convertible bond issue.

As Citi sinks deeper into the financial crisis abyss, it comes as no surprise that regional bourses are not having an easy time either.

Since Monday, the benchmark Straits Times Index has fallen more than 8 per cent. The Hang Seng in Hong Kong declined by a similar margin.

No prize for guessing that regional banks are among the top losers. The huge volume of bank transactions between Citi and other banks is sufficient to make investors shudder about possible systemic risks.

Last night alone, HSBC – which is probably the most solid global bank right now – fell 7.7 per cent on Wall Street. As I write, DBS has slipped 3.6 per cent while OCBC has fallen 2.8 per cent and United Overseas Bank is down 3.3 per cent.

So what is ailing Citibank?

The clue comes from the credit default swap market where CDS premiums on Citi has now widened to 360 bps – meaning that investors are willing to pay more to get protecton against possible default on Citi. A CDS spread of 360 bps means that an investor must pay US$360,000 to get US$10 million protection on Citi.

I encountered one lawyer who has a simple way of explaining what is happening to Citi.

Say Citigroup needed to sell US$200 billion worth of distressed financial assets – a reasonable figure considering the mammoth size of the bank.

Since last month, investors were hoping that the US government would take these assets off Citi’s hands at a decent price under the US$700 billion bailout package approved by the Congress last month.

But when US Treasury Secretary Hank Paulson changed his mind about using the package to buy distressed assets from troubled US financial institutions, he changed the dynamics of the game.

How should investors value the distressed assets held by Citigroup now that the US government - possibly the only buyer for them - is no longer interested ?

With Citi now worth only US$34 billion, there is no prize for guessing what must be investors’ answer.

For the rest of us, what we should do is to preserve capital and reduce debt - as we watch the unfolding drama on Citi.

Cash is king under these very excruciating circumstances – as Citi and everyone else is finding out right now.