Citi Management Shake-Up: Upcoming Divestiture of Commercial Banking Division?

Citigroup’s (C) spate of recent management changes may indicate that chief executive Vikram Pandit is gearing up to spin-off the firm’s commercial and mortgage-related banking divisions, and focus instead on traditional investment banking activities.

Monday, Citi announced that it was shifting around senior bankers in its emerging market operations, with the appointments of Stephen Bird and Shirish Apte as Asia Pacific chief executives, and World Bank managing director Shengman Zhang as the region’s chairman. To many, the appointments signaled an increasing focus for the firm in the white-hot emerging market investment banking business.

Yesterday, Citi announced its most radical personnel shift since the beginning of the financial crisis. The bank is replacing chief financial officer Edward Kelly, who assumed the role only as recently as March. Kelly’s replacement will be John Gerspach, previously the bank’s chief accounting officer.

Subsidiary Citibank will get a new chief executive officer, too, in the form of Eugene McQuade, who was formerly chief executive of the plagued FleetBoston Financial.

Such radical shifts in management are probably in part to do with Federal Deposit Insurance Corporation chairwoman Sheila Bair’s criticism of Vikram Pandit’s inexperience for the role of chief executive of one the nation’s largest banks. But they may also signal a move towards consolidating Citi’s business focus on investment banking activities, an area in which Pandit has more expertise.

Since the beginning of the year, Citi has been hiring top investment bankers in order to beef up its commission-generating businesses so that it can better compete with rivals such as Morgan Stanley (MS), Bank of America (BAC), and Goldman Sachs (GS).

Many say that part of Pandit’s problem in effectively managing Citigroup is that it is such a large, unwieldy mishmash of banking focuses, ranging from consumer finance to sales and trading to mergers and acquisitions. The argument follows that Citi’s best bet for the future will thus eventually be to split the bank into two different firms with diverging focuses: one concentrated on investment banking and the other on commercial banking.

The commercial banking division could either be sold off to a competitor, or more likely spun off in an IPO in which the newly-slimmed down investment bank would hold a passive investment stake.

“What [ex-chief executive] Sandy Weill put together here was an unmanageable organization that is too big to function or for any CEO to get his arms around,” Paul Mendelsohn, chief investment strategist at Virginia-based Windham Financial and a Citigroup shareholder, told BNET Finance. “At some point in time, when you can get your hands around what this thing is really worth, it will need to be broken up in some format and made manageable again.”

Comments

[hammer:]

How does JP Morgan operate a financial supermarket? It has a premium focus on risk management, expense control, capital management and business organization. Citibank lacks or lacked all these business practices until it became too late. They have brought in professional risk managers. They have announced wave after wave of expense and headcount reductions. It still remains to be seen if they will actually follow with their stated goals. It has tapped the capital market for sorely needed capital and has a temporary backstop guarantee from the US government. That is highly subject to the changing political winds of the Congress and the Executive Branch. The business organization is still in tatters. It is in too many places. I would guess the simple rule that 80% of the money is made in 20% of the places. Citi could afford to cutback on some locations without suffering any meaningful operating earnings reduction. Citi still has too many layers of management. It has global management which controls regional management which controls country management which controls local management. Along with that they have product and marketing management. This creates a vast web of staff, redundant reporting requirements and individual fiefdoms. It still retains the bigger is better theory of management of trying to be everything to everyone. It still retains the go for broke theory of trying to hit home runs. It relies on capital markets as the engine to fuel the bank. Financial historian will clearly tell you that prop trading inevitably ends up in blowups. It does not enhance businesses that are marginal performers (US branch business.) These are all the problems a competent manager would and should address. This mega-conglomerate was formed by Sandy Weill and John Reed. But it was destroyed by a lawyer with no operating experience name Chuck "dance to the music" Prince and another lawyer so-called financial icon name Robert "not-my-fault" Rubin. They did not focus on the details or make the necessary changes while the markets were favorable. They kept on adding expenses, risks and were woefully under prepared when and if there was a downturn. Rubin and Dick "AOL/TW failure" Parsons shoved a highly inexperienced, too slow to act trader as CEO. He might be a smart guy and certainly sounded business knowledgeable. But, in actuality he is just a trader that thinks and acts like a PhD. He wants all the information when that is not as important as action. But most of all he has surrounded himself with loyalists and purged the insiders that might have helped him. The Prince and the Secretary were exposed a with no clothes. And now the PhD should have stuck to trading or teaching. The fabric and soul of Citi has disappeared and now is the time for the board and the government to breakup the organization back into its original parts. That can't be done with the current cast of characters.

hammer

Jul 10 06:50 AM

[Mark54:]

We are witnessing the unwinding of Sandy's empire... someone (with a lot of time) should calculate the net shareholders loss once the dust settles.

Jul 10 01:06 PM