More bad news for hedge fund manager Ed Lampert. His ESL Investments was down 27% last year, Bloomberg reports, citing investors, and declined an additional 1.3% in the first quarter of this year. Lampert’s fund has been hit hard by his big bet on Sears Holdings (SHLD), the struggling retailer whose shares are off 48% over the past year. Lampert also hurt his own cause last year by making an ill-timed bet on Citi (C) just before the collapse of the mortgage market last summer.

But Bloomberg notes that Lampert is far from alone in feeling the pain of hefty bets gone wrong: Other managers of concentrated hedge funds - ones that plow lots of money into a limited number of stocks - are getting hit harder, with former UBS (UBS) trader Jon Wood’s SRM Global fund down 70% through March 31. SRM’s big misses include troubled mortgage lenders Northern Rock of the United Kingdom and Countrywide (CFC).

Get ready for more drama at Citi (C). The big bank will finally unveil its new strategy in a meeting with analysts and investors Friday, Fortune’s Carol Loomis writes. The bank will identify $400 billion in assets that it wants to sell as part of a cost-cutting plan, the Financial Times reports. The FT, citing sources familiar with Pandit’s thinking, says the CEO will use Friday’s meeting to rebuff calls for a breakup of the company, which has taken $34 billion in writedowns since the mortgage mess started to unravel last summer.

The report prompts Yves Smith at Naked Capitalism to offer a conditional endorsement of Pandit’s efforts. “From the outside, Pandit appears to be moving methodically but with sufficient speed to tackle the megabank’s problems,” she writes. But Michael Shedlock, a longtime Citi critic, says the asset sale plan smacks of desperation. “The amazing thing is Citigroup clinging to a dividend it cannot afford,” he writes.  “Exactly what is a sale of 20% of the company other than a breakup?”

Citi’s (C) latest capital-raising plan has failed to impress one of the bank’s most vocal skeptics. Oppenheimer analyst Meredith Whitney writes in a report out late Tuesday that the bank’s decision to sell $3 billion in common stock won’t keep Citi from having to raise more money via further stock sales and asset dispositions. “The fact that Citi raised capital at this time did not come as a surprise to us, but the fact that the company raised such a small amount of capital at this time confounds us,” she writes. She expects to see Citi raising an additional $10 billion to $15 billion in capital, on top of the nearly $40 billion it has raised since December. If she’s right - and she often has been since her call last fall that Citi would have to cut its dividend - the bank still has a ways to go to optimize its capital structure, as finance chief Gary Crittenden put it in Tuesday’s stock-sale announcement. Citi shares were down 3.5% in early trading in New York Wednesday.

Citi (C) is raising more cash. The bank said late Tuesday it would sell $3 billion in common stock to the public in a bid to “optimize our capital structure,” as finance chief Gary Crittenden put it. The news comes just weeks after Citi, hit by billions of dollars of losses on mortgage-related securities and rising credit losses in its consumer business, raised $6 billion by selling preferred stock.

Citi said the two most recent capital-raising efforts will boost its Tier One capital ratio, reflecting the ratio of core equity capital to total risk-weighted assets, to 8.5%. Shareholders tend to like preferred stock sales better than common ones, because they can mean less dilution of existing ownership stakes. But Citi indicates it is ”pleased with the strong interest we have already received regarding this issuance,” Crittenden said. Investors were less pleased, sending the stock down 3% in late trading.

Citi (C) is raising more capital and maintaining its reduced dividend. The bank is raising $6 billion through a sale of preferred stock paying an 8.4% dividend for the first 10 years, Reuters reports. Citi also declared a 32-cent dividend for the second quarter. The moves come just days after Citi posted a $5 billion first-quarter loss and just one day after Oppenheimer analyst Meredith Whitney predicted Citi would be forced to cut its dividend again this year. CEO Vikram Pandit cut Citi’s dividend by 40% to the current level in January, as the bank struggles to trim its balance sheet and shed money-losing investments.

Citi is far from the only bank being forced by heavy mortgage-related losses to raise new capital. U.S. rival JPMorgan (JPM) raised $6 billion last week in a similar sale of preferred stock paying a 7.9% dividend, and on Tuesday the Royal Bank of Scotland (RBS) said it would raise $24 billion in a rights issue to existing shareholders to shore up its balance sheet. “This is a difficult time for the financial services industry, and it has presented us with specific challenges,” CEO Sir Tom Killop explained. RBS shares fell 3% in London.

Citi’s (C) rising tide is lifting the financial sector. Bank and brokerage stocks soared after Citi posted a first quarter that wasn’t as bad as some analysts had feared. Citi was up 8%, while rivals Bank of America (BAC) and JPMorgan Chase (JPM) rose 5% and 3%, respectively. Among brokerages, Goldman Sachs (GS) was up 5% and Merrill Lynch (MER) was up 3%.

And the rally wasn’t limited to the quality names. A number of firms that have seen their shares tumble this year due to worries about the health of their big mortgage portfolios also jumped: Countrywide (CFC) surged 9%, Indymac (IMB) rose 5% and online broker E*Trade (ETFC) soared 11%. Even Bear Stearns (BSC), due to be taken out of its misery later this year by JPMorgan Chase, rose 3%, roughly in line with the value of the all-stock buyout deal.

The one firm that failed to participate in the rally was Thornburg Mortgage (TMA), the Santa Fe, N.M., jumbo-mortgage lender that late last month sold a 90% stake to investors to stave off a bankruptcy filing. Shares were down 2 cents in midday trading at $1.29 apiece. Looking at the bright side, though, the warrants that the Thornburg investors got giving them the option to buy shares at a penny each are still firmly in the money.

Citi (C) posted a steep first-quarter loss, but shares rose in early action Friday as the results were substantially better than the worst-case scenarios that had been drawn up on Wall Street. Citi lost $5.1 billion, or $1.02 a share, for the quarter ended March 31, reflecting $12 billion in writedowns on mortgage-related securities and leveraged buyout loans, among other things. While that’s a big writedown, it wasn’t as big as some forecasters had expected: The range of projected writedowns ranged as high $18 billion at Merrill Lynch, which had forecast a loss of $1.66 a share.

Citi said revenue fell 48% from a year ago, reflecting the writedowns, while the bank also posted a $3.1 billion increase in credit costs in its global consumer segment. And like Merrill Lynch (MER) yesterday, Citi reported that it took a downward credit value adjustment related to exposure to monoline insurers. The near collapse of several smaller monolines has rendered some hedging strategies involving them useless, a trend that cost Citi $1.5 billion.

Still, even with huge swaths of its balance sheet under water, Citi continues to show some earnings power. Transaction services revenue rose 42% from a year ago to a record, while Smith Barney revenue rose 18%. “Despite the negative factors in the broader markets, we continue to see strong momentum throughout the organization with robust volumes in many of our products and regions,” said CEO Vikram Pandit. Shares rose 7% in pre-market trading.

Citi’s (C) sweetening the pot for the buyout crowd as it tries to lighten the load on its balance sheet. The bank is allowing private equity firms to pick and choose which assets they want to bid on as Citi seeks to raise cash by selling $12 billion worth of leveraged loans. Citi, which has already taken some flak for financing the sale at favorable terms, is now asking firms including Apollo, TPG and Blackstone (BX) to choose from a menu of loans behind seven major buyout deals, the Financial Times reports. The decision smacks of desperation to Yves Smith, who writes at Naked Capitalism that “it’s a foregone conclusion that the big bank will be left with the worst assets” among those offered for sale.

Citi isn’t the only big financial firm that may soon be taking some pain on the loan-sale front. Deutsche Bank (DB) is close to nailing down a deal that would allow it “to sell billions of dollars of high-risk debt to several private-equity firms at prices just below 90 cents on the dollar,” The Wall Street Journal reports. The Journal reports that a sale as envisioned could rid the bank of “at least half of the roughly $16 billion of LBO loans it has been forced to hold after the credit crunch caused investors to balk at buying them.” But Felix Salmon notes that a report in thedeal.com puts the price at closer to 85 cents a share and the deal size at $5 billion or so, and wonders how healthy such a deal would really be for Deutsche Bank.

Citi (C) is trying to get out from under its massive debt load. The financial titan is near a deal to sell $12 billion worth of leveraged loans and bonds to a private equity group, The Wall Street Journal reports. The move would cut the firm’s holdings of those assets, which have been difficult to sell since the debt markets froze up this past summer, by more than a quarter.

The deal comes as investors seek to get a glimpse of any bold strategic vision from CEO Vikram Pandit. Since taking over for Chuck Prince back in December, Pandit has set plans for big job cuts, paved the way for a possible spinoff of the company’s card unit and made a number of personnel moves. Earlier this week, Citi named cost-cutter Mark Rufeh head of productivity for its institutional-clients group. Citi may offer more details on its plans next Friday, when it’s due to post first-quarter earnings.

But so far, it’s hard to detect any grand pattern beyond constant motion. Earlier this year, for instance, the firm rolled out a plan to combine all of its residential mortgage operations under the CitiMortgage name. At the same time, Citi was splitting its wealth management unit in four  in a bid to focus more closely on various groups of clients. “Starting today, we will move from a ’silo-first’ to a ‘client-first’ organization,” wealth management chief Sallie Krawcheck said, Reuters reported.

In a posting called “Citigroup’s Two Part Strategy Explained,” blogger Michael Shedlock notes that “big silos will be split into small silos,” and then “small silos will be combined into one big streamlined silo.” Unable to contain his admiration, he adds, “This is an ingenious plan. Not many could have
come up with it. It will be a travesty of justice if big bonuses are not handed out for this fine effort.”

Citi (C) is making more changes. The financial giant named Teresa Dial CEO of its North American consumer banking operation and unveiled a new organizational chart that will “drive greater cross-business collaboration; eliminate bureaucracy and create a nimbler, more client-focused organization; ensure strong risk management and capital resources; and drive cost and operational efficiencies to generate additional shareholder value.”

As part of the move, Citi is separating the consumer banking unit from its global cards unit, which will be led by Steven Freiberg. That decision, reported earlier by Bloomberg, has Yves Smith at Naked Capitalism musing about further developments at Citi. “This change could be a precursor to a sale or public offering,” she writes. “Citi has a very solid card business and it may be forced to sell some crown jewels if writedowns continue.”

Others are less impressed by Monday’s moves. While Citi bills the reorganization as allowing the firm to “achieve greater client focus and connectivity, global product excellence, and clear accountability,” Charles Bobrinskoy at Ariel Capital Management tells Bloomberg television investors will continue to worry about possible losses on Citi’s massive mortgage portfolio until they get information that allows them to focus their attention elsewhere.