Citigroup to split after $8,29bn loss

Ailing US banking giant Citigroup reported on Friday a larger-than-forecast 2008 fourth-quarter net loss of $8,29-billion and said it was splitting into two businesses to restore profitability.

The bank posted a fourth-quarter loss per share of $1,72, far worse than most analysts’ predictions of a $1,19 loss.

It was the bank’s fifth consecutive quarter in the red amid the deepening global financial crisis.

Citi said that $5,6-billion in revenues in the final three months were pressured by write-downs and losses, including $6,1-billion in net credit losses and $6-billion in net loan loss reserve build.

For the full year 2008, Citigroup posted a net loss of $18,72-billion, or $3,88 per share.

The embattled bank said it would split the company into two separate groups in a bid to regain profits and growth.

“Today, we announced that we would separate the company, for management purposes, into two separate businesses — Citicorp and Citi Holdings,” said Vikram Pandit, Citi chief executive.

“We are setting out a clear roadmap to restore profitability,” he said.

In a separate statement, Citigroup said Citicorp will be a global bank serving individuals and businesses in more than 100 countries.

Citicorp was expected to have assets of $1,1-trillion and would be 65% deposit-funded, the bank said.

Citi Holdings will include brokerage and retail asset management, local consumer finance and a special asset pool.

“Citi Holdings will be a group of non-core businesses that include attractive long-term businesses with strong market positions.

“However, they do not sufficiently enhance the capabilities of Citi’s core business, and in many ways compete for its resources,” Citigroup said.

Pandit said that “given the economic and market environment”, the company had decided to accelerate the restructuring to focus on its core businesses.

“This will help in our ongoing efforts to reduce our balance sheet and simplify our organisation, which will enable us to better serve our clients and customers in both businesses without disruption.”

Pandit said that by lowering risk and streamlining businesses, the company should return to being a high-return and high-growth business.

“And with the new Citi Holdings, we will be able to tighten our focus on risk management and credit quality for businesses with strong market positions but that are not central to our core franchise.”

The major restructuring announcement came after Citigroup and Morgan Stanley said on Tuesday they would merge their worldwide brokerage operations in a deal giving ailing Citi $2,7-billion in much-needed upfront cash.

The combined firm, to be called Morgan Stanley Smith Barney, will have $1,7-trillion in client assets and some 20 000 brokers as the world’s biggest retail brokerage, according to the companies.

The deal was announced amid growing concerns about the fate of Citigroup, which had been the world’s biggest financial company but has been hammered by heavy losses in the financial crisis and received the largest portion of a US government programme to inject capital into troubled banks.

Citi has received a total of $45-billion in capital injections from the US Treasury to shore up its finances.

Pandit pledged that the bank would speed up the use of the Treasury’s rescue from its $700-billion Troubled Asset Relief Programme (Tarp).

“We are committed to helping the financial markets recover as quickly as possible. To accelerate that recovery, Citi is putting the Tarp capital it has received to work to support the US economy and consumers — expanding the flow of credit to US households and businesses responsibly and on competitive terms,” he said. — AFP

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