The Fool: Split up Citigroup?

3 Ways to Fix Citigroup

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Citigroup's shares trade at a huge conglomerate discount. Boutique investment banks like Greenhill and Lazard, wealth managers like Raymond James, and diversified consumer banks like US Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC) trade in the 20, 15, and 12 times trailing price earning multiples ranges.

Citigroup, which boasts extremely competitive positions in most of its businesses, should trade near or at a slight discount to these multiples -- shares are currently trading at less than eight times 2008 earnings estimates. If Citigroup simply split into consumer banking, capital markets, and wealth management divisions, it would almost certainly increase in value, become much more nimble, and remove layers of bureaucratic expenses.

The synergies of the financial supermarket model have never worked. Sure, it makes sense for consumer banks to offer credit cards. But it doesn't make much sense to pair an investment bank and a consumer bank. Jane or Joe Schmo won't walk into a bank, deposit $100, and then ask for merger and acquisition advice.

So there you have it. Anyone who has ever read "You Can Be a Stock Market Genius" can attest to the fact that spin-offs handily outperform the market once freed from an onerous and bureaucratic structure. It may be time for Citi to regroup, spin off into separate businesses, and finally allow its shares to beat the market.


Arch critic calls for Citigroup to be broken up

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Meredith Whitney, the CIBC World Markets' financial services analyst, believes the only way forward for new chairman Robert Rubin and interim chief executive Sir Win Bischoff is to carve the bank up and sell it off.

Ms Whitney's comments last week on the state of Citi's balance sheet sparked a $369bn (£177bn) fall in world markets and helped trigger an emergency meeting of the bank's board at the weekend at which Mr Prince tendered his resignation.

Citi is the largest victim to date of the global credit crisis, announcing further write-downs of up to $11bn on top of $5.9bn revealed in the third quarter.

Asked about the possibility of a Citi break-up, Ms Whitney, who received death threats following her comments last week, said: "That's really the only thing they can do. They don't have the capital to manage it as an ongoing entity."