Wednesday, January 14, 2009

Citigroup plans to split its supermarket financial services model

This is a rather interesting Marketwatch story:

BOSTON (MarketWatch) -- Following a blockbuster brokerage deal with Morgan Stanley, Citigroup Inc. is set to unveil a sweeping plan to unload several businesses and reduce its size by one-third -- moves that essentially sound a death knell for its financial-services supermarket model, according to a published report.

Citigroup announced a brokerage joint venture with Morgan Stanley late Tuesday, in what could be the first part of a major reorganization of the struggling company.

Beyond the Morgan Stanley joint venture, Citi will soon announce measures to shed two consumer-finance units and its private-label credit-card business, and step back from proprietary trading, The Wall Street Journal reported Wednesday.

Citi plans to narrow its focus to just wholesale banking for large corporate clients and retail banking for customers in selected markets around the world, according to the newspaper, which cited unidentified people familiar with the matter.

Citi shares fell more than 20% on Wednesday and closed below $5 after the company moved up the date of its quarterly earnings release to Friday. Morgan Stanley shares were down about 9% as the financial sector moved sharply lower.

Citigroup was the pioneer of the supermarket model for financial services when Citicorp merged with the Travelers Group in 1998 to become one of world's largest financial institutions. However, with mounting losses due to risky the collateralized debt obligations during the subprime mortgage crisis, Citigroup is now trying to raise whatever cash they can to cover these losses. That is why they are ripping apart the supermarket model of financial services, and have decided to concentrate their banking services with corporate clients and the ubber-rich customers. It seems to me that Citigroup is facing a SHTF situation, and they are trying to bug out.

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