What’s killing Citigroup — slowly Financial Schools Reviews

What’s killing Citigroup — slowly

Written by Jessica Clark on April 25, 2010 – 6:22 pm

“We have turned the corner,” Citigroup () Chief Financial Officer John Gerspach said as he announced Citigroup’s first-quarter 2010 financial results April 19.

But I have to ask: What corner is he looking at?

Can’t be the corner of 40th and Broadway near my office in Manhattan. There, a dingy Citigroup branch with beat-up ATMs is barely hanging on in competition with a refurbished JPMorgan Chase () branch down the block (with ATMs that deposit checks without a deposit slip) and a new Capital One () office up the block.Can’t be the corner of 104th and Broadway, near my house, where a new Sovereign Bank branch is siphoning off accounts from local small businesses that used to be Citigroup customers.

Can’t be the corner of my desk, where I’ve got my JPMorgan Chase mortgage bill stacked near my Fidelity credit card bills. I get regular annoying phone calls from Chase asking me whether I want to refinance my mortgage. I can’t remember ever getting a mortgage marketing call or letter from Citigroup. And my wife and I once had a Citigroup mortgage, and we have an account with the bank. And this is what’s happening in the bank’s home market and what was once its core business of consumer and commercial banking. If Citigroup has trouble on this turf, you know it’s in trouble everywhere.

The truth is that Citigroup has indeed survived. As hard and desperate as that struggle was, it may have been the easy part.

What’s left and what’s leaving

It’s hard to see a future in which Citigroup is anything more than an also-ran. Just name me one line of business where, within five years, it’s plausible that Citigroup will be one of the best 10 banks in the world.

While the global financial system is better off today because Citigroup didn’t fail in 2008, the world of 2010 and 2011 doesn’t need Citigroup for much of anything. With apologies to Irving Berlin, anything Citigroup can do, some other bank can do better.

On April 19, Citigroup reported its first operating profit — 14 cents a share — since the third quarter of 2007. The bank charged off only $8.4 billion in loans in the quarter — a huge number but still 16% lower than in the fourth quarter of 2009. Its Tier 1 capital common ratio, a measure of the strength of a bank’s most conservative kind of capital, stood at a huge 9.1%. It was just 3% at the depths of the financial crisis.

I don’t think there’s any doubt that the bank will survive. And that’s a huge achievement. This is a bank that required $25 billion in capital from U.S. taxpayers in October 2008 and an additional $20 billion in December of that same year.

But look at the bank still left standing.

Citigroup’s strategy has been to split itself in two.

All the really bad businesses — and some simply outside Citigroup’s core business — have been sold already or lumped into a group called Citigroup Holdings for eventual disposal. The list of businesses that Citigroup has sold includes the Smith Barney brokerage unit, rolled into a joint venture with Morgan Stanley () but headed for eventual sale; Nikko Securities, the third-largest brokerage company in Japan; and insurance company Primerica, partly spun off in an initial public offering in March.

But Citigroup Holdings still contains about $500 billion in assets. That’s about 25% of Citigroup’s total assets, and it includes subsidiaries the company wants to unload, including CitiMortgage, consumer-lending business CitiFinancial, and various toxic mortgage, credit card and loan assets.

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