NEW YORK (Bloomberg) — The US government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank's stock-market value in three days, according to investors and analysts.

Citigroup's $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the US government this year. Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke may favour a rescue to avoid the chaotic aftermath of Lehman Brothers' bankruptcy in September.

"Citi is in the category of 'too big to fail'," said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. "There is a commitment from this administration and the next to do what it takes to save Citi."

In Bermuda, Citigroup employs around 230 people who are waiting to hear their fate as the global financial giant prepares to axe 52,000 jobs worldwide.

One rescue option is for the Federal Reserve and US Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.

The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the US budget.

"That is the working relationship they have settled into with the Fed providing $1 trillion of the funding and the Treasury providing the equity tranche," said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Citigroup management and some board members discussed "several options" for the company in a series of phone conversations with Paulson and New York Federal Reserve Bank president Timothy Geithner yesterday, the New York Times reported on Saturday, citing unidentified people involved in the talks. Among those options were the possible replacement of chief executive officer Vikram Pandit, a public endorsement of Citigroup by the government or a new financial lifeline, the Times said. No decisions had been taken as of late on Friday, it said.

While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating companies. A similar scenario played out at Lehman, when CEO Richard Fuld declared the firm was "on the right track" five days before the firm went bankrupt.

"The market may be implying some sort of regulatory intervention," Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients yesterday. "In situations where the government has stepped in, the equity holders have not fared well."

Pandit told employees on Friday that he doesn't plan to break up the company, aiming to reassure workers as the stock resumed its skid. Citigroup shares dropped 94 cents, or 20 percent, to $3.77 in New York trading on Friday, giving the company a market value of about $21 billion.