(Updates to add asset split for potential "good bank/bad bank" structure)
By David Enrich
Of THE WALL STREET JOURNAL
Citigroup Inc. (C), under pressure to rapidly downsize, is preparing to unveil a major reorganization that will mark a further step toward dismantling the financial conglomerate, according to people familiar with the matter.
In addition to spinning off the New York company's Smith Barney retail brokerage unit into a joint venture with Morgan Stanley, Citigroup is preparing to narrow its overall mission to two areas, these people said. The company plans to focus on wholesale banking for large corporate clients and retail banking for customers in selected markets around the world, people with knowledge of the discussions said Tuesday.
An agreement on the Smith Barney joint venture, which represents the first step in that process, is expected to be announced after the close of U.S. stock-market trading Tuesday.
(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)
The planned moves essentially undo large pieces of the financial supermarket created when Citicorp and Travelers Group merged in 1998 to form Citigroup. The shakeup is intended to slice about a third of the assets from Citigroup's balance sheet, now roughly $2 trillion in size, according to a person familiar with the company's plans.
Other businesses likely to be shed include Citigroup's consumer-finance operation, such as Primerica Financial Services and CitiFinancial, private-label credit cards and many of Citigroup's consumer-related businesses in Japan. Citigroup also plans to substantially trim its proprietary-trading activity, which had been consuming significant amounts of scarce capital.
The strategic shift is expected to be announced when Citigroup reports fourth-quarter results Jan. 22. A Citigroup spokeswoman declined to comment Tuesday.
Until recently, Citigroup Chief Executive Vikram Pandit had repeatedly backed the company's "universal bank" model. But with directors and executives now bracing for a fourth-quarter operating loss of at least $10 billion and federal officials worried about previous turnaround efforts, Citigroup has decided that more dramatic action is needed, according to people familiar with the matter.
Shrinking Citigroup won't be quick or easy. The company is assigning management teams to handle the gradual disposal of units and other assets, but a person familiar with the matter emphasized that Citigroup doesn't plan to engage in a "fire sale." Efforts to find buyers also will be complicated by rocky market conditions and the recession.
Citigroup already has pursued some pieces of its downsizing push. For example, executives have been trying for months to reduce its exposure to Japan, where rising defaults are hurting profits. Citigroup also has been searching for about a year to find a buyer for Primerica, which sells mutual funds, insurance and other financial products.
That auction hasn't resulted in a sale because of a scarcity of buyers willing to pay what Citigroup regards as a reasonable price, according to people familiar with the matter.
As part of the new plan, Citigroup executives are considering the possibility of creating what is known as a "good bank-bad bank" structure, these people said. Under that structure, Citigroup would create a new corporate entity to house what it regards as its core businesses.
The "bad bank" would hold around $700 billion in assets, with the remaining $1.1 trillion considered core. The entity would face accounting-related complications, and Citigroup hasn't settled on the approach, people familiar with the discussions said.
Shares in Citigroup ended the day up 5.4% at $5.90.
-By David Enrich, Wall Street Journal; david.enrich@wsj.com
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Publié le 13 janvier 2009 Copyright © 2009 Dowjones