NEW YORK — One year after stripping its entire mortgage business from its retail bank, Citigroup Inc. is rethinking that decision.
On Tuesday, Chief Financial Officer John Gerspach gave the strongest indication yet that Citi intends to keep more than just a toe in the mortgage business. He also sent a signal that mortgages are attractive assets, rather than just toxic waste that only the U.S. government, through Fannie Mae and Freddie Mac, is willing to hold.
Gerspach said the bank in this quarter will move $34 billion of mortgages from Citi customers in the U.S. into its core retail banking business and out of Citi Holdings. Those mortgages are "a piece of the business that we are going to continue to run," he said.
In January 2009, Citi decided to split its operations into two segments. Citicorp combines the retail, business, and investment banking business with the securities and payment transaction processing operation. Citi Holdings is the receptacle for those businesses that the bank wants to run off or sell, including consumer loans to customers not tied to the bank and troubled loans and securities.
Mortgages were not the only asset that Citi has now decided to keep when it tweaked its Citi Holdings strategy. Afore Banamex, Seguros Banamex and $17 billion in securities and business loans were also removed from the inventory of assets Citi intends to dispose.
But mortgages are considered an essential part of retail banking, and Citi has continued to originate mortgages at its own branches and through community banks with which it partners. Citi Holding's total residential real estate portfolio totaled $177 billion on Dec. 31.
The mortgages it has now decided it will keep in Citicorp are those it makes to Citibank customers, originated either in its bank branches or elsewhere, and which are also prime, first mortgages to affluent clients--mortgages that comply with Fannie Mae and Freddie Mac standards. Also being kept are jumbo mortgages too large to be bought by Fannie and Freddie.
The portfolio of mortgages originated by brokers or through branches of CitiFinancial, the bank's non-bank consumer lending unit, will remain in Citi Holdings and run off.
"It's obvious that we are in the retail banking business. Mortgages are a piece of that," the CFO told investors during a conference call. "We have a growing book of mortgages...that reflect new underwriting standards. They are associated with our existing customer base...so these mortgages really belong back in Citicorp."
The shift in direction coincides with a change in Citi's retail banking strategy and leadership. Citibank wants to focus on affluent customers in metropolitan markets rather than to be all things to all people. Last week, North American retail banking chief Terri Dial left, and Manuel Medina-Mora was appointed chief executive of Citi Consumer Banking for the Americas. Medina-Mora was already chairman and CEO of Citi Latin America and Mexico.
Medina-Mora was also behind Citi's decision to keep Afore and Seguros, Gerspach told investors. Afore manages pension funds in Mexico, and Seguros is an insurer there; together, they have about $5 billion in assets. "We actually believe these businesses probably should have been, quite frankly, kept in Citicorp from the beginning. So that is just a refinement of our strategy," the CFO said.
The remaining securities and loans were in Citi Holdings because the U.S. Treasury Department, when it gave Citi its second infusion of aid in November 2008, gave the bank loss guarantees on securities and loans.
But Citi paid back the aid last month and exited the guarantees. "Now that the ring-fenced agreement is no longer in place, it gives us the opportunity to look into the special asset pool and then pull back some of those, the corporate loans in particular, that really belonged in Citicorp" because they are loans that perform well, Gerspach said.