Capital is key to Citigroup's future. And on that score, investors are still worried, even after the banking giant announced plans Monday to cut 50,000 employees.

For its part, Citigroup thinks its balance sheet is well positioned and its capital ratios equal or exceed those of peers. Chief Executive Vikram Pandit told employees that the bank's capital base is strong.

Granted, job cuts will reduce Citi's cost base, eventually boosting earnings. That should help increase equity, improving Citi's balance sheet.

But on broad-brush measures that don't risk-weight assets, the bank's balance sheet is still highly leveraged. Tangible assets, which don't include goodwill or intangibles, are 55 times the bank's tangible equity. J.P. Morgan Chase, by contrast, is 31.4 times, while Bank of America is 31.3.

Citi's leverage worries some investors. Furthermore, possibly making matters worse are proposed accounting-rule changes that, if adopted, will prompt banks in 2010 to bring some off-balance-sheet assets back onto their books.

Tangible assets rise to nearly 59 times tangible equity if Citi has to bring about $120 billion in credit-card assets back onto its books in 2010, as is likely. Citi also may have to consolidate some of the roughly $670 billion in mortgage assets currently held by off-balance-sheet vehicles.

If the bank had to consolidate just 20% of these mortgage assets, tangible assets would rise to about 63 times tangible equity. Citigroup thinks it is 'highly unlikely' it will have to bring back on book much of these mortgage assets. Even so, Citi needs to take more radical action to reduce its leverage. The job cuts are simply a step in the right direction.

David Reilly