WASHINGTON - Citigroup revealed plans to split up into two businesses, effectively bringing an end to the company’s ‘financial supermarket’ model, after reporting a much bigger-than-expected $8.3 billion quarterly loss Friday.
Under the new arrangement revealed by the banking giant’s Indian American CEO Vikram Pandit in New York, Citigroup would split into two units: Citicorp and Citi Holdings.
Citicorp would house, among other things, the company’s private and investment bank as well as its credit card and consumer banking business, with about $1.1 trillion in assets.
The smaller Citi Holdings would incorporate its so-called non-core businesses, including its Smith Barney brokerage and a pool of troubled assets that have plagued the firm for more than a year.
Pandit said the difficult economic and market environment for both Citigroup and the broader banking sector forced the company’s hand, adding that the move will help simplify the organization and help better serve both clients and customers.
‘The realignment will preserve what makes Citi unique - its global, universal banking footprint,’ he said in a statement. ‘We will continue to move aggressively to get Citi back on the right track and return it to a position of sustainable financial success.’
Citigroup stock, which has lost 43 percent of its value over the past week amid concerns about its future, gained 4 percent in morning trading on the news.
By splitting up the company, Citigroup will effectively divide the company into a so-called ‘good bank-bad bank’ structure.
Such a move is expected to allow the company to provide greater transparency to investors about the troubled assets. It will also allow Citi to hold some loans that have not gone bad, such as existing mortgages and student loans, until they are paid off, CNN said.
Pandit said during a conference call with investors Friday morning that the bank was not in a rush to sell some of the Citi Holdings units. Analysts have speculated in recent months that the company may look to sell additional divisions in an effort to raise cash.
The New York City-based bank recorded a net loss of $8.29 billion, or $1.72 a share, during the fourth quarter, representing the company’s fifth-straight quarterly loss. The bank lost a total of $18.72 billion in 2008.
Hoping to silence market speculation about its underlying health, Citigroup moved up Friday’s report. Still, the numbers was far worse than Wall Street was anticipating. CNN said analysts were expecting the bank to record a loss of $4.49 billion, or $1.31 a share.
‘Our results continued to be depressed by an unprecedented dislocation in capital markets and a weak economy,’ said Pandit.
Citigroup, which ranks as one of the world’s biggest banks by assets, said it would work to implement the changes as quickly as possible, with the new structure reflected in its reporting by the second quarter of this year.
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