US banking giant Citigroup abandoned its “supermarket” model on Friday in the face of a deepening global financial crisis, announcing a split into two businesses as it retrenches in the face of massive losses.
The New York banking group reported a hefty US$8.29 billion loss in the fourth quarter. The loss per share was US$1.72, dwarfing most analysts’ predictions of a US$1.19 loss.
Fourth-quarter revenue fell 13 percent to US$5.6 billion.
PHOTO: BLOOMBERG
The bottom line was under severe pressure, including from a US$6 billion net loan loss reserve build, a US$2 billion restructuring charge and US$5.6 billion in writedowns.
“We continued to make progress on our primary goal in 2008 — which was to get fit,” Citi chief executive Vikram Pandit said.
Citi said the US government had finalized the terms of its guarantee against possible large losses on an asset pool of US$301 billion, US$5 billion below the original Nov. 23 announcement.
For the full year last year, Citigroup posted a net loss of US$18.72 billion, or US$3.88 per share, better than market expectations of US$3.24. Citi shed 52,000 jobs in a cost-cutting restructuring.
Citigroup said it would separate the company into two businesses — Citicorp and Citi Holdings — abandoning the sprawling financial “supermarket” model it had built over the years.
“Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses,” Pandit said.
The bank said Citicorp would be a commercial bank operating in more than 100 countries, with assets estimated at US$1.1 trillion.
It would group Citigroup’s investment bank, private bank, financial services, commercial bank and credit card businesses.
Citi Holdings will group the bank’s “non-core businesses,” including brokerage and retail asset management.
The bank acknowledged the legal, fiscal and regulatory complexity of the overhaul, but said the realignment would begin immediately and the second-quarter results would be presented under the new organization.
Briefing.com analyst Patrick O’Hare said the picture looked bleak.
“Citigroup, which plans to split into two units now, may have eased concerns about a worst-case scenario for equity holders for the time being, but it didn’t provide any basis for wanting to own the stock for anything other than a trade,” O’Hare said.
Standard & Poor’s affirmed Citi’s credit rating, but analyst Scott Sprinzen said: “We are placing a high degree of emphasis on the availability of future extraordinary government support.”
On Wall Street, Citi shares tumbled 3.66 percent to US$3.69 in late trading. The share has plunged 84 percent from a year ago.
Citigroup said it would put its 49 percent stake in its new brokerage joint venture with Morgan Stanley under Citi Holdings. The partners announced on Tuesday the deal to create Morgan Stanley Smith Barney, the world’s biggest retail brokerage.
Citi Holdings also will include the Japanese businesses Nikko Cordial Securities and Nikko Asset Management, insurer Primerica, consumer financing and a special asset pool insured by the US government.
Citigroup, which had been the world’s biggest financial company but has been hammered by heavy losses in the financial crisis, has received a total of US$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 US$700 billion Troubled Asset Relief Program (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.
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