New-look Citi

Citigroup moves toward break up

Excerpts:

Citigroup is to break itself up by separating higher risk US consumer finance and securities businesses from its global commercial banking operations in a dramatic attempt to ensure its survival.

People close to the situation said Citi would place unwanted assets and businesses worth more than $600bn - a third of its balance sheet - into a “non-core” unit to isolate them from healthier parts of the company.

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The move to split the company into two would go a long way towards dismantling the 1998 merger between John Reed’s Citicorp and Sandy Weill’s Travelers that created Citigroup and could be a template for other troubled banks.

The new-look Citi would be more similar to the old-style Citicorp: a global commercial and retail bank but with the addition of the advisory and underwriting business of Travelers’ investment bank Salomon Brothers.

Citi would, however, seek to dispose of some of the risky securities and consumer finance businesses, including subprime mortgages and the Primerica door-to-door insurance sales force, that came with Travelers.

The investment bank would remain a core part of Citi but its operations and capital would be constrained, especially in proprietary trading and securitisation, in an effort to reduce risk and earnings volatility, insiders said.

Comment: I'm not close to the situation, but my observation is that somewhat like ITT of yesteryear, Citigroup was too disparate to manage.