If the latest rumors are correct, it looks like Citigroup (NYSE: C) will not change very much from its current structure. So Citi may fail to follow the compelling story arc of repealing Glass-Steagall to form itself in 1998 only to reinstate that 1933 law in 2009 by splitting its investment and commercial banking operations. Instead, it looks like Citi will do a bit of trimming around the edges.
At the core of the problem is $150 billion in toxic assets -- consumer, corporate, and leveraged loans -- which appears to be the amount of cash Citi will need to raise assuming it writes off all that toxic waste and then attempts to raise the same amount of capital through asset sales.
So Citi's new strategy is to find buyers who in total are willing to pay $150 billion for the various pieces of Citi's business. And this push appears to be coming from FDIC chair Sheila Bair who may be representing taxpayers' 7% stake -- the single largest -- in Citi. But after all the selling Citi will still have consumer, commercial, and investment banking operations (basically the same corporate strategy).
So what is Citi going to try to hawk? Here are four candidates:
- Primerica, largely an insurance operation, which was one of Sanford Weill's first acquisitions.
- Proprietary trading operations which bought the toxic real estate-related securities now causing Citi hundreds of billions in write-downs.
- CitiFinancial, a consumer-lending unit with a 3,799 branches around the world that offer car loans, home-equity lines and personal "debt-consolidation" loans to repay credit cards and other bills. This operation lacks the software to let salespeople offer consumers an array of credit cards to customers.
- Tokyo-based Nikko Asset Management Co. -- which manages money for institutions and individuals.
If you are thinking that there's less here than meets the eye, I think you're right. I don't know why anyone would want to buy Citi's proprietary trading operations considering how out of favor such toxic waste churners are now. Why anyone would pay much for CitiFinancial's rising levels of bad debt and operational problems is also beyond me.
In short, what Pandit is peddling will probably not yield the $150 billion in proceeds Citi needs. Nor does it look like what will be left of Citi has the future earnings power needed to boost its stock. Like retired Citi director Robert Rubin, who left with $126 million after a decade in which Citi lost $164 billion in market value, Pandit's ideas sound tired.
It's time to really turn the page on the past and bring in fresh leadership for Citi.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns Citi shares.
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Reader Comments (Page 1 of 1)
1-14-2009 @ 10:35AM
Dan Barnett said...
As of 10:30 Eastern C is testing your $5 level. Interesting to see if the bottom falls out entirely.