Citigroup Inc. began yesterday to shrink its financial "supermarket" model that took shape in Baltimore two decades ago by splitting into two businesses, as it reported an $8.29 billion quarterly loss.
Citicorp will focus on its stronger operations, including its global, corporate and investment banking services, while Citi Holdings will oversee noncore businesses such as its government-backed risky assets, insurance unit Primerica Financial Services and CitiFinancial, its Baltimore-based consumer lending arm.
Citi Holdings assets are expected to be sold or merged, although Citigroup chief executive Vikram Pandit said yesterday that the company is in "no rush ... to separate ourselves from these businesses."
"Our goal is to maximize its value by running these businesses well, restructuring and managing through the cycle and being alert to disposition and combination possibilities," Pandit told analysts during a conference call.
The reshaping of Citigroup began this week with sale of the controlling interest in brokerage firm Smith Barney to Morgan Stanley. Citi Holdings - which accounts for $850 billion of $1.95 trillion in assets - will be in charge of the new brokerage unit, called Morgan Stanley Smith Barney, along with CitiMortgage and Nikko Asset Management.
Smith Barney absorbed much of Baltimore-based Legg Mason Inc.'s brokerage more than three years ago in a $3.7 billion deal.
Yesterday's moves seek to alleviate financial concerns about Citigroup, which reported a net loss of $18.7 billion for the year. The government has lent it $45 billion and agreed to absorb losses on a huge pool of Citigroup's mortgage and other soured assets.
But some analysts were skeptical about Citigroup's move to separate its "good" assets from "bad" ones.
"You could make a good case that Citigroup is a failed bank," said Stuart Greenberg, a Baltimore-based banking consultant, noting that he does not have confidence in current management. "And the largest shareholder right now is me and you, as taxpayers. It really is a failed bank that's being propped up and kept alive by taxpayer money, not stockholder money."
CitiFinancial is the successor to Commercial Credit Corp. in Baltimore, which Citi patriarch Sanford I. "Sandy" Weill acquired in 1986 as the first step toward his goal of creating a company that would serve all financial needs of individual and business customers. Through a series of mergers, Commercial Credit turned into the Travelers Group, which in turn merged with the old Citicorp in 1998 to form Citigroup.
CitiFinancial makes home equity loans, auto loans and personal "debt consolidation" loans that can be used to pay off credit cards and other bills. It has more than 2,500 offices in the United States and Canada and 13,000 employees. About 900 workers for that business are based in Baltimore and elsewhere in Maryland.
Bert Ely, a banking consultant in Alexandria, Va., said Citigroup will likely have a hard time trying to sell some of its assets in a deepening recession, though potential buyers could get cheap prices.
Another bank in the consumer lending business could buy CitiFinancial to consolidate the industry and gain economies of scale, Ely said.
"It's a business that is not the easiest business to run. It's a management-intensive business; they need to be on top of credit risk," Ely said. "But done right, it could be a profitable business because it meets an important credit need in the consumer market."
About 6,000 employees work across Citigroup's businesses in Maryland, including a credit-card processing center in Hagerstown.
Citigroup's revenue fell 13 percent to $5.6 billion in the fourth quarter from the corresponding period a year ago. At its peak performance in the second quarter of 2007, Citigroup pulled in $25.8 billion in revenue. Citigroup used to be the largest bank by assets but recently lost that title to JPMorgan Chase & Co.
After extensive layoffs and business sales last year, the bank's work force dropped by about 52,000 to 323,000 in 2008, the company said. Last fall, Pandit announced Citigroup would shed a total of 75,000 employees - meaning there are 23,000 employees still to be let go.
For all of 2008, Citi suffered a net loss $3.88 per share. That compares with a profit of $3.62 billion, or 72 cents per share, in 2007.
Citigroup's lead independent director, Richard Parsons, said yesterday that the bank also plans to shake up its board of directors. Robert E. Rubin, the former Treasury secretary who was a consultant to Citigroup's board, resigned this month.
The Associated Press contributed to this article.
citi's operations in maryland
* 6,000 total employees
* 900 workers at Baltimore's CitiFinancial, the parent's consumer finance business
* 2,244 employees at a credit-card processing center in Hagerstown
* 850 workers at Citi's global wealth management division, including brokerage firm Smith Barney
* Other employees at Citi's corporate offices and investment banking
Sources: Citi, Hagerstown-Washington County Economic Development Commission