Citigroup Inc., under pressure to rapidly downsize, is preparing to unveil a major reorganization as a further step toward dismantling the financial conglomerate, according to people familiar with the matter.
In addition to spinning off its Smith Barney retail brokerage unit into a joint venture with Morgan Stanley, Citigroup is preparing to narrow its corporate mission to two areas, these people said. The company plans to focus on wholesale banking for large corporate clients and retail banking for customers in selected markets around the world, people with knowledge of the discussions said Tuesday.
An agreement on the Smith Barney joint venture — the first step in that process — was announced after the market closed Tuesday. (See related story.)
The planned moves essentially undo large parts of the financial supermarket assembled when the former Citicorp and Travelers Group merged in 1998 to form Citigroup.
The shakeup is intended to slice about one-third of the assets from Citigroup's balance sheet, which now totals roughly $2 trillion, according to a person familiar with the company's plans.
Businesses likely to be shed include Citigroup's consumer finance operations, such as Primerica Financial Services and CitiFinancial; private-label credit cards; and many of Citi's consumer-related businesses in Japan. Citigroup also plans to substantially trim its proprietary-trading activity, which had consumed significant amounts of scarce capital.
The strategic shift is expected to be announced when Citigroup reports fourth-quarter results on Jan. 22. A Citigroup spokeswoman declined to comment Tuesday.
Until recently, Citigroup chief executive Vikram Pandit had repeatedly backed the company's "universal bank" model. But with directors and executives now braced for a fourth-quarter operating loss of at least $10 billion and federal officials worried about previous turnaround efforts, Citigroup has decided on more dramatic action, according to people familiar with the matter.
Shrinking Citigroup will not happen quickly or easily. The company is assigning management teams to handle the gradual disposal of units and other assets, but a person familiar with the matter emphasized that Citi does not plan to hold a "fire sale." Efforts to find buyers also will be complicated by rocky market conditions and the recession.
Citigroup already has pursued some parts of its downsizing push. For example, executives have been trying for months to reduce exposure to Japan, where rising defaults are hurting profits. Citi also has been searching for about a year to find a buyer for Primerica, which sells mutual funds, insurance, and other financial products.
That auction hasn't resulted in a sale because of a scarcity of prospects willing to bid what Citigroup regards as a reasonable price, according to people familiar with the matter.
As part of the new plan, Citigroup executives are considering the possibility of creating what is known as a "good bank-bad bank" structure, these people said. Under it, Citi would create a corporate entity to house what it regards as its core businesses.