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Citi to sell businesses to save itself

January 14, 2009 16:48 IST

Citigroup will soon announce what its executives describe as a drastic plan to shed a host of businesses and shrink itself by one-third, a leading financial daily said on Wednesday, citing people familiar with the bank.

That would essentially dismantle the financial colossus built by legendary dealmaker Sanford Weill.

Citigroup on Tuesday had said, as expected, that it will spin off its Smith Barney retail brokerage into a joint venture with Morgan Stanley.

But the US banking behemoth will also announce steps to shed two consumer-finance units and the company's private-label credit card business, and scale back on the trading the company does on its own behalf, the Wall Street Journal said.

While some of the moves, have been in the works for months, Citigroup chief executive Vikram Pandit is expected to acknowledge, for the first time, that the New York company's fundamental strategy needs an overhaul, the paper said, citing people familiar with the company.

Such a public admission would come as a welcome move as investors and regulators alike pressed Citigroup to shed unprofitable businesses as it faced its fifth straight quarter of losses.

Citi now plans to narrow its focus to large corporations and rich individuals. Executives hope to dump or shrink businesses that cater to less-affluent customers.

Citigroup, the Journal said, declined to comment. The moves, which the company intends to unveil, along with its fourth-quarter earnings next week, would represent the final abandonment of the acquisition-fueled growth strategy that built Citigroup from a small consumer-finance business into one of the world's largest financial institution, the journal said.

According to the report, the moves would represent the final abandonment of the acquisition-fueled growth strategy that built Citigroup from a small consumer-finance business into one of the world's largest financial institutions, with over 3,00,000 employees in more than 100 countries.

"The company would essentially strip itself of large pieces of the company formed in a landmark 1998 merger of Citicorp and Travelers Group by then-CEO Weill," the report added.

Further, the daily quoting a person familiar with the firm's plans said as part of the new push, "Citigroup's enormous balance sheet would shrink by about one-third from its current size of roughly two trillion dollars."

Meanwhile, the New York Times reported that Citi's plans to accelerate dismantling of its "financial supermarket" comes after a stern regulatory warning in November 2008. Attributing to one of the people briefed on the discussions, the report said the warning "was delivered by Sheila C Bair, the chairwoman of the Federal Deposit Insurance Corporation, who told Citigroup that any further requests for cash would result in a breakup of its operations dictated by regulators."

On Tuesday, Citi said it has reached a definitive agreement with Morgan Stanley for a new joint venture. As part of the pact, the company would combine Smith Barney, Citi's Smith Barney, Quilter in the UK, and Smith Barney Australia with Morgan Stanley's Global Wealth Management Group into a new joint venture called Morgan Stanley Smith Barney.

At the closing of the transaction, Citi would recognise a pre- tax gain of nearly $9.5 billion, or about $5.8 billion on an after-tax basis, and would create approximately $6.5 billion of tangible common equity.

"We will own 49 per cent of this leading wealth management business and will continue to participate in its earnings and growth," Pandit said in the statement.

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