Citigroup Plays Good Bank Bad Bank
It’s good news and bad news for Citigroup (NYSE: C) today. Like most financials, the company took more than a few hard knocks back in 2008, and so far 2009 isn’t looking much better. Everybody knew that Citigroup would post a loss for last quarter, but nobody expected it to be as high as it is at $8.29 billion.
But that bad news isn’t holding its recovery team back, who appear to be thinking fast on their feet. After reviewing the books and their options, the company has decided to split into two separate entities.
For the past decade, Citigroup has functioned by providing investment advice and insurance alongside branch banking, corporate lending and stock underwriting. Back in the day, that model suited them just fine but those days are long gone though, and the once strong financial is fighting to get back on its feet in whatever way it can.
The course of action they decided on is to sort their assets into two categories: those definitely worth keeping and those that are dragging them down. Known as a good bank/bad bank strategy, Citigroup is still likely to retain most of its services… for now.
The “good bank” section will be revamped into Citicorp, led by CEO Vikram Pandit, and involve core commercial, retail and investment banking worldwide. The “bad bank” offshoot will include riskier ventures such as brokerage, retail asset management and consumer finance, and will operate under the new name Citi Holdings.
Right now, the ultimate fate of Citi Holdings is up for grabs though. Because of the very toxic nature of those ventures, Citigroup is still debating on whether it will sell it off, or take the risk of allowing it to mature and hoping for the best. Currently, the company is still looking for that special somebody who will run the potentially doomed division.
Unfortunately, as with most corporate corrections, that means more lay-offs are likely on the way. And that includes at the top. Citigroup’s lead independent director, Richard Parsons didn’t go into details in his statement today, but he made it clear nonetheless that the board of directors was in for an overhaul.
Friday, January 16, 2009 - by Jeannette Di Louie, Assistant Editor of Mt. Vernon Research
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