Citigroup is finally admitting defeat in its financial supermarket business model (via WSJ):
Citigroup Inc., under pressure to rapidly downsize, is preparing to unveil a major reorganization that will mark a further step toward dismantling the financial conglomerate, according to people familiar with the matter.
In addition to spinning off the New York company’s Smith Barney retail brokerage unit into a joint venture with Morgan Stanley, Citigroup is preparing to narrow its overall mission to two areas, these people said. The company plans to focus on wholesale banking for large corporate clients and retail banking for customers in selected markets around the world, people with knowledge of the discussions said Tuesday.
Citigroup was just too big to manage effectively at least by the management team at Citi. Maybe somebody else could do a better job, but I have my doubts. We don’t have the details yet, but basically Citi is returning to its roots as a bank. Not that they’ve been anymore succesful at that over the years, but hey, why not?
The planned moves essentially undo large pieces of the financial supermarket created when Citicorp and Travelers Group merged in 1998 to form Citigroup. The shakeup is intended to slice about a third of the assets from Citigroup’s balance sheet, now roughly $2 trillion in size, according to a person familiar with the company’s plans.
Other businesses likely to be shed include Citigroup’s consumer-finance operation, such as Primerica Financial Services and CitiFinancial, private-label credit cards and many of Citigroup’s consumer-related businesses in Japan. Citigroup also plans to substantially trim its proprietary-trading activity, which had been consuming significant amounts of scarce capital.
The strategic shift is expected to be announced when Citigroup reports fourth-quarter results Jan. 22. A Citigroup spokeswoman declined to comment Tuesday.
Until recently, Citigroup Chief Executive Vikram Pandit had repeatedly backed the company’s “universal bank” model. But with directors and executives now bracing for a fourth-quarter operating loss of at least $10 billion and federal officials worried about previous turnaround efforts, Citigroup has decided that more dramatic action is needed, according to people familiar with the matter.
One gets the feeling the board finally woke up and realized, hey we’re losing a bunch of money. This isn’t working! I know, let’s try something else. What could it be? Hey, how about banking? We haven’t tried that in a while.
They’re thinking about a good bank/bad bank model.
As part of the new plan, Citigroup executives are considering the possibility of creating what is known as a “good bank-bad bank” structure, these people said. Under that structure, Citigroup would create a new corporate entity to house what it regards as its core businesses.
The “bad bank” would hold around $700 billion in assets, with the remaining $1.1 trillion considered core. The entity would face accounting-related complications, and Citigroup hasn’t settled on the approach, people familiar with the discussions said.
There’s good stuff? Who knew? Roughly 40% of its remaining assets are considered “bad”. Why did we bail out these losers again? Anybody want to take a bet on what part of the good bank/bad bank model the taxpayer will get?