Friday, 16 January 2009

Citigroup Splits Into Two Companies. Will Other Banks Have the Same Fate?

After reporting a $8.29 billion loss in the fourth quarter, Citigroup Inc. announced plans to break into two different companies, replenish its capital base and end losses once and for all. Vikram Pandit, the under-fire CEO who succeeded Chuck Prince last year, will undo the legacy of legendary dealmaker Sandy Weill. The process includes the creation of Citicorp (which will house the core global bank business,) and Citi Holdings, for the non-core business and the assets guaranteed by the U.S. government.

Reuters says: ''Citigroup, once the champion of the 'financial supermarket´model, is splitting into two operating units in what is known as a 'good bank/bad bank´strategy. Critics of the bank, who argue it had become too big and complex to manage, have demanded a break-up for some time.´´

The question remains. In the current environment where no bank can easily shed assets, how is the new Citicorp going to relinquish of those assets that turned the most problematic for the institution? Are we witnessing a slow agony for a bank that once was the biggest financial services company in the world? Hard to tell, but either bondholders and stockholders are suffering with this. I saw in Reuters that Citigroup's stock rose about 4 percent following the break-up news (it has risen up to 8 percent today.) Well, this might be just a short-term recovery, nothing else. Check the graph below.

No comments:

Post a Comment