A day after JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) showed the world that they're staying afloat in this unruly market, Citigroup (NYSE:C) revealed that it's sinking like a stone.

The third quarter brought a net loss of $2.8 billion, or $0.60 per share, on revenue of $16.7 billion, down 23% from last year. The news marks the fourth straight quarter of gut-wrenching losses for the colossal bank, whose attempt to be the alpha "supermarket" of banks backfired into a hodgepodge of assets no one can figure out.

Since the credit crisis started more than a year ago, Citigroup has written off more than $40 billion in bad loans. The misery continued this quarter, as the company took $13.2 billion in charges. When will it ever end? No one really knows.

The common denominator in predicting when the pain will end is real estate, which will keep falling as long as credit markets remain in flux. Just this morning, news that 30-year mortgages underwent their largest spike since 1987 spooked the market into realizing that the battle over real estate prices is far from over.

In the meantime, the most Citigroup can hope to accomplish is winning the ongoing battle with operating expenses. Despite plenty of talk, it isn't. Expenses grew 2% during the quarter -- not a lot, but in an environment where Citigroup is quickly purging out its balance sheet, coughing up losses, and retooling its vision, investors should expect more.

Cutting overhead costs has been a problem for Citigroup for years now -- even well before the credit crunch became readily apparent -- so shareholders indeed have a right to be irked that during these survival-of-the-fittest times, Citigroup has to struggle with issues that should have, or could have, been addressed years ago.

What happens from here? Two big developments arrived in the past two weeks: Citigroup lost its battle for Wachovia (NYSE:WB), and it received a $25 billion investment from Uncle Sam. The first development was a heavy blow, because Wachovia would have juiced Citi's balance sheet with a killer deposit base. Furthermore, Citi was trying to buy the company for a measly $1 per share, and it had the FDIC backing some of the losses. Oh well ... easy come, easy go.

The second development, $25 billion from the government, should be a pretty good deal. The terms aren't overly onerous -- warrants representing 15% of the investment, and an initial dividend of 5%, going to 9% in five years -- which gives Citi plenty of cash to repair whatever carnage the future shall hold, and should also dispel any rumors of a looming collapse if things get much worse. No matter what happens, you have to think the government won't let a bank like Citi fail (a la Lehman Brothers) now that it has a $25 billion vested interest in its future.

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