Citigroup Inc. (NYSE: C) is unmanageable. That's my conclusion after trying to understand its latest quarterly report. The concept behind this 100-armed corporate octopus is that people like to buy all their financial services in one place and therefore it makes sense to be able to sell them a full line of products from stocks to bank accounts. But I suspect that customers don't want all their financial eggs in one basket, so the concept is fatally flawed.

Moreover, its financial performance reveals that Citi is a complex mess whose many different businesses do not diversify its earnings streams. According to its quarterly report, Citi lost $5.1 billion. Most of the losses came from its Securities and Banking (-$6.4 billion), Alternative Investments (-$509 million), and U.S. Consumer (-$476 million) units. Two bright spots were $1.3 billion in earnings from International Consumer and $732 million in Transaction Services.

But wait, there's more in its huge, risky portfolio. Citi has $40 trillion in derivatives -- enormous bets on interest rates and currencies. And it has $1.2 trillion worth of off-balance sheet entities (remember Enron?). Nobody really knows what these are worth or how much they'll cost. And that doesn't even get us to the $262 billion in Level 3 assets -- illiquid, difficult-to-value securities -- which are 2.1 times Citi's $128 billion in capital. That's a pretty thin cushion for future write-downs.

In fact, the irony is that one of the reasons for such a diverse collection of businesses is to reduce risk in down markets. But Citi has borrowed so much money that its capital could easily be wiped out by all the risky securities and businesses it entered with that capital. It borrowed $17 for every dollar of its $2.2 trillion worth of on-balance sheet assets. And if you add in all the off-balance sheet items, it borrowed $339 for every $1 of its combined $43.4 trillion worth of off- and on-balance sheet items.

What Citi needs is to fix its corporate strategy. It has to offer customers a better deal than its competitors so it takes share in the most profitable markets. For instance, if it wants to win in bank deposits, it needs to offer the highest deposit rates and have the most ubiquitous network of ATMs and branches. As I posted, one way to do this might be to split Citi in two: a consumer bank and a commercial bank. These two separate companies would be able to focus on the distinct needs of these two customer groups.

And if Citi's management were sufficiently skilled, it could craft strategies to give those customers better value than the competition. This would revive earnings growth and reward shareholders. And as I posted, I don't think CEO Vikram Pandit's plan to sell $400 billion in assets will do this.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares.