WORLD> America
Citigroup posts loss, splits up the bank
(Agencies)
Updated: 2009-01-16 23:29

The cuts come as Citigroup has racked up more than $28 billion in losses for the past five quarters. Its biggest deficit was in the fourth quarter of 2007; the losses abated, but then accelerated in late 2008.

For all of 2008, Citi suffered a net loss of $18.72 billion, or $3.88 per share. The compares with a profit of $3.62 billion, or 72 cents per share, in 2007.

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The new Citicorp will include the retail bank; the corporate and investment bank; the private bank, which serves wealthy individuals; and global transaction services.

Citi Holdings - which will account for $850 billion of Citigroup's $1.95 trillion in assets - will include Citi's asset management and consumer finance segments, including CitiMortgage and CitiFinancial. It will also be in charge of Citi's 49 percent stake in the joint brokerage with Morgan Stanley, and the pool of about $300 billion in mortgages and other risky assets that the US government agreed to backstop late last year.

Citigroup said it entered a definitive agreement on that deal with the government on Thursday. The government has already lent the bank $45 billion. Citigroup is not alone in requiring more government funding than originally planned last fall - early Friday, the Bush administration agreed to give Bank of America Corp. an additional $20 billion worth of fresh capital to help it sustain losses at Merrill Lynch, in addition to $25 billion in rescue funds it previously received.

Pandit said Citi Holdings has some valuable businesses, but ones that are not "core" to Citigroup's mission as it tries to hone in on its global banking business and become more careful about risk.

He said he will consider "all options," but that "we're not in a rush to sell businesses."

The company's new structure is practically a reversal back to 1998, when John Reed's Citicorp merged with Sandy Weill's financial services conglomerate Travelers Group. Travelers Group at the time had an insurance business, an asset management business, the retail brokerage Smith Barney, and the investment bank and bond trader Salomon Brothers.

The 1998 combination was Weill's idea, and was made possible by the partial repeal of the Glass-Steagall Act of 1933 - which prohibited banks from also getting involved in investing and insurance. Reed agreed to the deal, saying that average people did not want to have to shop around for financial products.

The culture and technology over the past decade, however, seem to have shot down that forecast.

"In this day and age, with the Internet and access to information, a lot of savvy consumers have figured out that it's better to shop around," said Michael Pagano, a finance professor at Villanova University School of Business. "The reality is there are some customers, but not enough, to justify this comprehensive set of services that are out there."

It's not the model itself, though, that clobbered Citigroup, said Bert Ely, a banking industry consultant in based in Alexandria, Va.

"Possibly, Citigroup bit off too much too quickly to make it work," Ely said. "It was more focused on doing deals ... and not focused on the nitty gritty of integration and execution, of making it work day in and day out."