NEW YORK – Citigroup's new chief executive, Vikram Pandit, plans to stick with a global banking model after months of intense review – but only after shrinking the company by about one-fifth first.
The three-year plan, revealed yesterday, includes getting rid of more businesses, mortgages, real estate operations and jobs.
Associated Press
Citigroup's three-year plan, revealed yesterday, includes getting rid of more businesses, mortgages, real estate operations and jobs.
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The bank aims to shed $400 billion to $500 billion of its $2.2 trillion in assets and grow revenue by 9 percent over the next few years as it tries to rebound from massive losses tied to deterioration in the credit markets.
The $500 billion in “legacy assets” the bank intends to sell off or allow to mature includes yet-to-be-named noncore businesses, as well as assets in Citigroup's securities and consumer banking segments. That includes mortgages and other real estate-related holdings.
Meanwhile, the bank plans to cut costs, which Chief Financial Officer Gary Crittenden said will mean more job reductions. Citi has so far lowered its head count by 13,200 since last summer.
The moves could mean the bank loses its standing as the nation's largest if it doesn't grow other assets simultaneously. According to their most recent regulatory filings, Bank of America has $1.74 trillion in total assets, while JPMorgan Chase has $1.64 trillion.
The investor presentation yesterday didn't come as a huge surprise. Citigroup has begun its winding-down process by writing down about $38 billion in soured debt since last summer and setting plans to reduce its residential mortgage assets by $45 billion over the coming year. It also has sold businesses including CitiCapital, CitiStreet and Diners Club.
These moves arrived on top of huge stock sales to outside investors, including government funds in Singapore and the United Arab Emirates.
Roger Lister, chief credit officer for U.S. financial institutions at bond-rating company DBRS, said Citi should be able to find buyers for its assets, as most aren't particularly risky, and instead are simply low revenue generators for the bank.
“The plan makes sense,” Lister said. “In some ways, it's the easy part.”
While others agreed that Citi had to sell assets, not everyone was certain how easy such a sale would be.
“I'm not sure they have half a trillion in good assets that someone wants to buy. But they're doing the obvious; they have no choice,” said R. Christopher Whalen, managing director of consulting firm Institutional Risk Analytics.
Either way, whether Pandit's plan proves successful will determine his legacy as a turnaround specialist for a company that many claim was struggling long before the housing market's collapse.
Pandit joined Citigroup in July 2007, when it bought his hedge fund Old Lane. The board fast-tracked him to the CEO spot in December, five weeks after former CEO Charles Prince was forced out after the bank's dismal performance during the third quarter.
“This is going to be a difficult environment to judge success,” said Lister, who worked at Citigroup during the late 1980s and early '90s. “He has done what I think one would have expected of a dynamic, experienced business leader. . . . It's the execution that's going to be the challenge.”
Citigroup has been under heavy investor scrutiny over the past year as the value of its stock tumbled. Many Citigroup holders have been angling for a large-scale overhaul of the company's structure. Those shareholders' hopes have dwindled, with executives saying they intend to keep the bank's major parts intact.
“We believe the right model is a global universal bank,” Pandit said.
Citigroup shares slipped 67 cents, or 2.8 percent, to $23.63 yesterday. The stock is down about 18 percent in 2008 and 55 percent over the past 12 months.
