Citigroup rose 6 percent to $4.06 in New York trading after tumbling 43 percent this year through yesterday. The New York- based company, which earlier this week announced plans to sell control of the Smith Barney brokerage, said today in a statement it has tagged for disposal the CitiFinancial consumer-lending business and Primerica Financial Services life-insurance unit, both building blocks of the financial colossus assembled by former CEO Sanford “Sandy” Weill.
A dwindling capital cushion and sinking stock price forced the 52-year-old Pandit to abandon Citigroup’s decade-old strategy of providing investment advice and insurance alongside branch banking, stock underwriting and corporate lending. He’s shedding units to free up capital and save the bank from insolvency.
“They are going to try to home in on what’s worth something, and try and sell the pieces that they really can’t value,” Todd Colvin, vice president of MF Global Inc., said in a Bloomberg TV interview.
Citigroup’s lead independent director, Richard Parsons, said today in a statement that the bank also plans to shake up its board of directors. He didn’t provide details.
Pandit, who took over 13 months ago from ousted predecessor Charles O. “Chuck” Prince, will undo Weill’s legacy by creating Citicorp to house the New York-based company’s global bank, and Citi Holdings, for “non-core” assets, including those guaranteed by the U.S. government.
The net loss of $1.72 a share compared with a loss of $9.8 billion, or $1.99, a year earlier. Excluding a $3.9 billion gain from the sale of a German consumer bank and other results from discontinued operations, the bank’s loss was $2.44 a share. On that basis, the loss was more than twice as wide as the $1.08 average estimate of analysts in a Bloomberg survey.
As Citigroup plunged 77 percent last year in New York trading, the bank was forced to accept $45 billion of U.S. government rescue funds.
“It looks like a kitchen-sink quarter,” said Peter Sorrentino, who helps manage $16 billion at Huntington Asset Advisors Inc. in Cincinnati, including Citigroup shares. “Sweep it all in there and get this behind us.”
The cost of protecting Citigroup Inc. from default dropped 49 basis points to 276, according to CMA Datavision prices for credit-default swaps.
Citigroup’s announcement came as Bank of America Corp., the biggest U.S. bank by assets, received emergency funds from the government to support its acquisition of Merrill Lynch & Co. The Charlotte, North Carolina-based company reported a loss of $1.79 billion and cut its dividend to 1 cent a share.
Weill solidified the strategy of serving corporate and individual clients around the world with a range of financial services in 1998, when his Travelers Group Inc. merged with John Reed’s Citicorp to form Citigroup Inc.
Citigroup plans to put Smith Barney into a $21 billion joint venture and relinquish majority control to Morgan Stanley. The deal, which bolsters Citigroup’s capital base with a $5.8 billion pretax gain, came less than two months after Pandit told employees he didn’t want to sell the business.
The plan to cut off “non-core” businesses in a deteriorating economy may put the bank into a deeper hole, Sanford C. Bernstein & Co. analyst John McDonald wrote in a Jan. 14 report.
“It will likely be difficult for Citi to effectively dispose of assets and businesses in the current environment,” McDonald wrote. “Any new solution is likely to need an incremental infusion of common equity, either from the government, private investors or the public markets, any of which is likely to be dilutive to existing Citi shareholders.”