Citigroup Already Being Broken Up (But Not Enough) 8 comments
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MarketWatch points out that Citigroup (C) is actually already being broken up:
Citigroup Inc.... is already being broken up under part-ownership by the government, [Richard] Bove and other analysts say...
Citigroup, roughly a third owned by the government, is already being broken up, giving investors a preview of how other large financial institutions may be shrunk in future.
"The break-up of some of the banks has already occurred," Bove said. "Citigroup doesn't really exist anymore."
Late Thursday, the company unveiled plans for an IPO of its Primerica business, which sells life insurance, mutual funds, variable annuities and other financial products.
Citigroup sold its Smith Barney brokerage business to Morgan Stanley earlier this year and had already jettisoned most of its insurance operations.
Other businesses sold include its money-management arm, retail bank networks in Germany and Puerto Rico, brokerage, banking and consumer finance operations in Japan, Diner's Club and other credit card portfolios, payment processing businesses in the U.S., India and Brazil, and a controversial energy-trading unit called Phibro.
Businesses that remain on the block include Commercial Credit, The Associates, most of its mortgage, auto and student-loan portfolios and possibly its Mexican bank, Bove said.
Citigroup had $2.4 trillion in assets in September 2007 and this has declined to $1.9 trillion in two years, the analyst noted.
Citigroup has housed all the businesses it doesn't want in Citi Holdings, while the operations it wants to keep are in Citicorp.
The remaining institution will have roughly $1 trillion in assets, with a leading credit-card business, a large retail bank in New York, a medium-sized retail bank in California, a clutch of small private banks globally and a top payment-processing and lending business, Bove said.
"The Treasury Secretary and numerous other bank regulators have spoken repeatedly about the need to gain the power to liquidate companies that pose systemic risks," the analyst wrote in a recent note to investors. "Citigroup is the laboratory experiment to show how it can be done."
I applaud peeling off divisions of the TBTFs. But unless Glass-Steagall is restored, and the overall size of the banks reduced significantly, they still pose a gigantic and very real risk to the economy.
Indeed, the MarketWatch article goes on to quote Economist Henry Kaufman (a former Salomon Brothers executive who was on the board of Lehman Brothers) and Simon Johnson saying the same thing:
The firms would probably still be too big to fail, Kaufman said, adding that the only way to change this is to shrink the firms and limit many of their activities...
Simon Johnson, an MIT professor and former chief economist at the International Monetary Fund, reckons there should be caps of roughly $100 billion on the assets of financial institutions and "serious criminal consequences" if firms are caught trying to get around such limits.
Bove thinks that B of A (BAC) will be next:
Bank of America, which has also received a lot of government support, is the next candidate to be broken up, Bove said.
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This article has 8 comments:
as long as citi insists on charging its credit card customers 29% annually, it will remain profitable, at the expense of the great unwashed.
> jack
If one wants to dig further, Citi nearly destroyed Legg Mason with its SIV assets, and now has taken aim at Morgan Stanley with Smith Barney. The fact is-Morgan Stanley and Citi have no business running a joint venture together. Clients will suffer as Morgan cannot handle 18,500 brokers and are using uneducated people to run the operations. Folks, 18,500 brokers represents real money, and now is not the time to have unseasoned, barely educated, non-MBA's running the planning of this JV. In two years Citi and Morgan go live with the combined JV and I can assure you, Morgan lacks the depth to make this successful-period. Citi knows this and is handing off the brokerage to destroy a competitor.
Citi needs be wound down, sold off, and Morgan Stanley needs a larger partner to help them run the brokerage. I pity clients if they do not since Morgan has said they lack the capital to make the deal work, and Citi is unable to succeed in any business. Once Citi does an IPO of Citibank and Citifinancial, that will be a sign that the end is near.
Meanwhile, Morgan Stanley will stand alone in 5 years with a brokerage of 18,500 brokers they can't handle. Morgan is a country store compared to Merrill, and they should not be allowed to recklessly pursue the joint venture with staff who are uneducated, not well-read, and unable to manage. God help the clients. All I can say.
What will the government do with their position after their 'break-up' is done? Given that Citi Holdings won't exist after their work is done, those 7bn govt owned shares just become one more dilutive mess that C will have to buy its way out of. I don't see the value here.
That's pure socialism and should never be allowed to happen it would punish the good along with the bad. If you want to fix the banking industry, limit the amount of money that banks can loan out to their customer deposits.
The customer deposits for Citigroup are quite substantial.
Customer Deposits for Citgroup as of 6/30/2009
Citigroup = $ 804,736,000,000
So as you can see, without borrowing a dime from anyone they could make a nice profit from just loaning out their customer deposits in which they loan out money at 5% and pay .25%-1% in interest. If they can grow their customer deposit base then they should be allowed to grow as big as they want. If we limit the banks then it will open a Pandora's box and we will then need to limit Wal-Mart in retail, Fidelity in Mutual Funds and Google in Search. When that happens Capitalism in this country will be dead.
We need to get back to the old way of banking and require that homebuyers put 20% down and that Fannie Mae and Freddie Mac be put out of business. Banks should hold onto their loans and not sell them as securitized packages. The old way of banking works best and that’s where we need to get back to!
Disclosure : No position in Citigroup, Wal-Mart, Fidelity, Fannie Mae, Freddie Mac or Google.
The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.
It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.