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.
The company would essentially strip itself of large pieces of the financial supermarket formed in a landmark 1998 merger of Citicorp and Travelers Group by then-CEO Weill. The slimmed-down company would look much like the pre-merger Citicorp, it added.
As part of the new push, Citigroup's enormous balance sheet would shrink by about one-third, from its current size of roughly $2 trillion, the paper said quoting a person familiar with the company's plans.
Terms of the Smith-Barney deal call for Morgan Stanley to pay Citigroup $2.7 billion in cash for its share of the joint venture in the retail brokerage.
Citigroup will also reap roughly $10 billion in pretax gains associated with the deal. That would help put Citigroup back on track to profitability when the deal closes.
Citigroup, which originally planned to sell in coming years the businesses it no longer deemed central, is speeding up the process to mitigate potentially billions of new losses as the economy worsens, the reported.
The government, which has twice supplied it with taxpayer support during the financNew York Times ial crisis, wants to avoid a repeat, it said quoting a person with knowledge of the situation.
But some Wall Street analysts and investors, the paper said, questioned whether the plan, which included the announcement on Tuesday that it would split its prized Smith Barney brokerage, goes far enough to address Citigroup's immediate troubles.
"They have moved the chips around, but it's the same game," Meredith A Whitney, an Oppenheimer banking analyst who has been critical of the company, was quoted as saying. "They still have the same capital needs."
Citigroup, the Times said, faces a devastating fourth quarter, with expectations of a $10 billion operating loss, and potentially billions more this year.
Federal regulators have been pressing Citigroup to clarify its strategy, shore-up its finances and shake up its board, the Times said, citing two people briefed on the situation. Government officials want the bank to close what they see as a credibility gap with investors.
The bank's plan to accelerate a dismantling of its financial supermarket comes after a stern regulatory warning it received late November, when its rapidly deteriorating share price prompted the government to give it a second cash infusion, of $27 billion.
That warning, according to one of the people briefed on the discussions, was delivered by Sheila C Bair, the chairperson of the Federal Deposit Insurance Co, who told Citi that any further requests for cash would result in a break up of its operations dictated by regulators, the paper said.
While Pandit has repeatedly rejected calls to break up the financial empire, the Wall Street Journal said, he is already pursuing many of the asset sales and spin-offs that are at the crux of the new plan. But by publicly embracing the idea of splitting up the company now, he could remove some of the pressure on his team, it added.
"This isn't massively different from what we said in May" when Pandit first unveiled his overall strategy for the company, said a person who's been briefed on the company's plans. "It's a little bit different and a lot faster."
If successful, the Journal said, the new Citigroup will feature an all-purpose corporate and investment bank that provides businesses worldwide with loans, advice on mergers and acquisitions, capital-markets services and trading and payments services, say people familiar with the bank.
Another part of the company would serve wealthy individuals through a private bank and provide retail-banking and credit-card services in places like the US, Latin America, Central Europe and Asia.
A long list of additional Citigroup businesses is likely to eventually end up on the block, the Journal said.
The list includes two consumer-finance units, Primerica Financial Services and CitiFinancial, and Citigroup's troubled Japanese consumer-lending operations. The company's private-label credit card businesses are also marked for disposal.