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Breaking Up Citigroup

Posted on 14 Jan 2009

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Word on the street is that Citigroup Inc. will be announcing a dramatic plan to shed a host of businesses and shrink itself by essence, dismantling the financial colossus built by legendary deal-maker Sanford Weill.

The bank announced Tuesday, as expected, that it will split off its Smith Barney retail brokerage into a joint venture with Morgan Stanley. Citigroup will also announce steps to shed two consumer-finance units and the company's private-label credit-card business, and scale back on the trading the company does on its own behalf.

Citigroup declined to comment.

The moves, which the company intends to unveil along with its fourth-quarter earnings next week, would represent the final abandonment of the acquisition-fueled growth strategy that built Citigroup from a small consumer-finance business into one of the world's largest financial institutions, with more than 300,000 employees in more than 100 countries. The company would essentially strip itself of large pieces of the company formed in a landmark 1998 merger of Citicorp and Travelers Group by then-CEO Mr. Weill. The slimmed-down company would look much like the pre-merger Citicorp.

Citigroup now plans to narrow its focus to large corporations and rich individuals. Executives hope to dump or shrink businesses that cater to less-affluent customers.

The company has attempted to sell some of these units over the past year, even as Chief Executive Vikram Pandit has said he remains committed to providing a one-stop financial supermarket. But Mr. Pandit is now expected to say for the first time that this fundamental strategy needs an overhaul. It would be an important acknowledgment that Citigroup's push to shed unprofitable businesses has entered a more serious phase, as investors and regulators alike press it to downsize in the face of its fifth straight quarter of losses.

As part of the new push, Citigroup's enormous balance sheet would shrink by about one-third from its current size of roughly $2 trillion, according to a person familiar with the company's plans.