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 Citigroup Inc.'s board is supposedly standing
behind CEO Vikram Pandit as he pulls apart Sanford Weill's trumpeted financial supermarket model and forges ahead with plan to restructure the bank into one-third from its current size of roughly $2 trillion. The question is: Will investors also stand behind Pandit and his new plan after two federal bailouts totaling about $45
billion and forecast fourth-quarter losses?
As The Deal's editor in chief Robert Teitelman stated, "Unloading Smith Barney into the JV is the first sign that Citi is breaking up," and breaking up is exactly what Pandit is planning, but in this economy could a massive restructuring that consists of divesting numerous businesses wind up more like dismantling an atomic bomb?
Morgan Stanley and Citigroup's announcement Wednesday morning that the banks reached a definitive agreement to combine Morgan Stanley's Global Wealth Management Group and Citi's Smith Barney for $2.7 billion in cash made investors a bit anxious as shares fell at open, and ultimately closed down 23% at $4.53 a share. The Smith Barney JV will supposedly be followed by a sale of two consumer finance units (CitiFinancial and its international retail brokerage operations) and the company's private-label credit card business, according to The Wall Street Journal. In the past, Citi has also been slowly divesting international businesses -- such as its $6.6 billion sale of Citi Deutschland to Crédit Mutuel-CIC -- and has even considered selling its Banamex Mexican banking unit and Primerica Financial Services Co. But can Citi sell them and for how much? This restructuring is sounding similar to American International Group Inc.'s asset sell-off, and AIG has had trouble selling assets due to a lack of financing and what AIG CEO Edward Liddy calls "fire sale" valuations. Already Citigroup has seen resistance after the beleaguered company's failed sale of its Primerica unit to JC Flowers & Co. LLC and Protective Life Corp. for $7 billion was supposedly cancelled. True, Pandit has to do something as Citigroup will apparently report fourth-quarter results on Friday instead of Jan. 22, with fourth-quarter losses projected around $10 billion and $20.3 billion for the first three quarters of 2008. But Pandit's strategy has varied throughout the year from divesting international assets to potentially acquiring retail banks, such as Wachovia Corp. and Chevy Chase Bank (both of which failed), to maintaining a universal bank model, and now major divestments to whittle down risk. Mind you, Pandit did inherit the firm's mortgage mess, but a lot is resting on his hands now. And with several failed deals in the can, you can't really blame investors and media for questioning results -- and even Pandit's tenure with the company. - Maria Woehr Also see: Citi to boot Bischoff? Is Pandit next? Will Citigroup divest its Australian unit? Categories Deal Video
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