Updated Oct. 12, 2009
The bank that never sleeps is holding an all-night sale.
Citigroup, in an effort to improve its bottom line and repay the government, has put a "For Sale" sign on numerous pieces of its business, downsizing what once was the nation's largest bank. Citi's executives are taking a decidedly different tack in trying to rescue their firm than their competitors, and some analysts question whether the downsizing alone will be enough to turn around the bank.
"The winding down of Citi Holdings [the units Citi has said are for sale] won't create enough gains to pay back the government," says bank analyst Ed Narjarian of ISI Group.
The latest indication that Citi is for sale came on Oct. 9. The bank sold its Phibro commodities-trading unit to energy and chemical giant Occidental Petroleum. Oxy Pete will pay $250 million for the unit, which specializes in oil and gas trading. Phibro is not a huge business for Citigroup. But it was one of the few businesses that continued to make money for the giant bank during the credit crisis. Phibro and Citi's global payment-processing business have long been seen as two areas in which the bank outperforms its competitors. Now one of Citi's profit jewels is gone.
It's just the latest sale for Citi, which has been paring back its businesses for well over a year. Earlier this year, the bank sold its Salomon Smith Barney brokerage unit to Morgan Stanley. Also gone are Citi's Diners Club credit-card business, its Japanese brokerage operations, a technology-services unit and some of its overseas divisions.
And there are no signs that the big Citi sale will end anytime soon. The bank still owes the government $45 billion from this past year's financial-rescue effort, and Citi executives said the bank would like to repay the government soon. Last June, in an unusual move, Citi hired investment banker James von Moltke for the sole job of heading the bank's corporate-disposal effort.
If that didn't make its intentions clear enough, earlier this year Citigroup publicly identified a number of businesses that it would like to get rid of. Among those that are still left are its insurance division Primerica and a home-loan business, CitiMortgage. At the time, Citi said it would like to hold on to much of its retail and corporate bank. A Citi spokesperson says that continues to be the bank's plan. In July, CEO Vikram Pandit told financial-news outlet Bloomberg that the bank is "moving extremely fast" on asset sales. He said the bank had already shrunk its assets 25%.
But these days it looks like much more is on the block at Citi than the bank is letting on. Citi is reportedly considering a plan to either sell off or close a number of its retail branches. At just over 1,000, Citi has a much smaller branch network than its rivals. Bank of America, for example, has 6,000 branches nationwide. Citi is reportedly considering closing or selling its bank branches in cities such as Boston, Philadelphia and other areas of the country where it does not have a significant presence. Citi has denied any such intention.
Then there is Phibro. Based in Westport, Conn., the unit was originally included among the businesses that Citi wanted to hang on to. And for good reason: Phibro has been profitable every year since 1997, averaging a gain of nearly $400 million a year for the past half-decade. But earlier this year, it was revealed that the head of that unit, Andrew Hall, had been paid $100 million for his work in 2008 and was set to get a similarly large check for 2009. Citigroup is subject to government-imposed pay caps as a term of the financial aid it received. The government was reviewing Hall's pay package and was reportedly moving closer to forcing Citi to either reduce or restructure Hall's pay. Rather than risk losing the trader and the profits of the unit Citi decided to sell.
Citi executives are taking a different path out of the financial crisis than many of its rivals, which at times has been a benefit to those rivals. With the acquisition of Citi's Salomon Smith Barney, Morgan Stanley now has the largest brokerage force in the nation. And while Morgan has gotten out of some trading businesses, it is expanding its retail banking business. Executives at Bank of America and Wells Fargo say there are no plans to sell off major pieces of those banks.