At Citi, Nothing is Safe — Not Even U.S. Retail Bank
By Kevin Dobbs
January 15, 2009


"We are and will remain a bank."

This assertion might just become Vikram Pandit's epitaph, much as "we're still dancing" haunted Charles Prince, his predecessor as chief executive of Citigroup Inc.

Mr. Pandit's assurance about Citi's sticking with banking came in an e-mail to employees Wednesday. But he did not say what kind of bank Citi would be or where it will operate.

Citi has "embarked on a long-term transformation," Mr. Pandit stated in the e-mail. He added, however: "Our core mission is unchanged. Our goal is to streamline our operations; strengthen our balance sheet; position ourselves to take advantage of historic global growth opportunities; and deliver to clients all the benefits of our strength, insight, and unique global reach."

Does "global" include the United States? Or might Citi concede it cannot compete on a retail level domestically and sell its 800 branches, perhaps market by market, to other national or regional players?

For example, Citi has 150 branches in the Los Angeles area, a market where U.S. Bancorp has made moves to expand. It has another 70 branches in Chicago that might tempt Bank of Montreal's Harris Bankcorp.

Jeffery Harte, an analyst at Sandler O'Neill & Partners LP, has been thinking about how Citi might restructure in the wake of some $300 billion in government assistance. The company may be forced to shed its U.S. retail business, he said.

"It would've been hard to imagine that even a month ago," he said, "but in this environment, a few days is like a few years."

In fact, Mr. Harte said he had talked with Citi's head of consumer banking, Terry Dial, about a month ago and "she was clearly, clearly not in the camp that retail was going anywhere. But I suspect if you'd talked to someone at Smith Barney a month ago, they would have felt the same way about their business."

Indeed, Mr. Pandit had made it clear he had no interest in selling Smith Barney, but on Tuesday he agreed to spin off the brokerage unit as a joint venture with Morgan Stanley. Under the deal, Citi would keep a 49% stake in the business after getting $2.7 billion in up-front cash from Morgan Stanley and about $10 billion in pretax gains.

Like Smith Barney, Citi's retail branches could fetch enough money to bolster capital and convince regulators that Citi is on a path toward profitability this year.

The Wall Street Journal first reported - and a Citi insider has confirmed - that the company wants to sell its CitiFinancial, Primerica, and private-label credit card businesses.

On Wednesday Citi accelerated the planned release of its fourth-quarter results to Friday, from Jan. 22. In addition to explaining a massive loss, Mr. Pandit plans to use the opportunity to reveal his latest strategy, including a sharper focus on corporate and affluent customers.

Though he may say nothing about it, observers figure that Citi's U.S. retail banking operation will eventually go on the block because bidders for the businesses Citi is shopping are scarce.

For instance, a unit of General Electric Co. tried but failed last year to sell its private-label cards business. A Citi insider said Primerica has been for sale for months, with no takers. And CitiFinancial, a subprime lending unit, is not likely to fetch anything approaching a premium while housing markets are still floundering.

If Citi does turn to its domestic retail bank, some sources said, its New York branches would probably be the last to go.

"It's hard for me to envision Citi without branches in New York, so I would think they'd first look to more of their foreign, but it's hard to judge right now," Lawrence White, a professor at New York University's Stern School of Business, said in an interview Wednesday. "But there's no question, these are desperate times, and you will probably see Citi take desperate steps to survive. It is a life-or-death period in time for them."

To be sure, others argue that U.S. retail banking is paramount for Citi's long-term survival and that the company - in tandem with regulators - acknowledged as much when it made a run at Wachovia Corp. last year, with government backing.

Wells Fargo & Co. ultimately put in the highest bid and won Wachovia, but Citi's interest "showed it knows retail banking is where the money is, where Citigroup needs to be," Ken Thomas, the president of in Miami, said in an interview Wednesday.

However, Wachovia could have been Citi's last best hope to build a U.S. retail franchise that could go toe-to-toe with peers like Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo - all three of which have made big acquisitions in recent months.

Some analysts, meanwhile, anticipate ongoing changes in Citi's executive suite and on its board, changes that may ultimately lead to Mr. Pandit's ouster. Such a shakeup probably would delay drastic steps such as selling domestic branches, Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said in an interview Wednesday.

"But they have to make changes fast now, or they might later have to rapidly sell off whatever they can to survive," he said.

Concern about Citi's strategy weighed heavily on investors Wednesday. The company's shares fell $1.37, to close at $4.53. 


Originally published in American Banker.