The unraveling of Sandy Weill’s financial supermarket picked up speed last week. Citigroup took Smith Barney off its shelves and moved it to a newly created store, Morgan Stanley Smith Barney. Morgan Stanley will hold 51 percent of the joint venture; Citi will retain 49 percent for three years at least, and will keep at least 20 percent of MSSB after five years. Citi’s pretax gain on the sale will amount to some $9.5 billion.

On January 14, Citi CEO Vikram Pandit told his employees that the “economic model of our business is sound and positions the company for success in the long term.” Not only that—“our core mission is unchanged.” But wait, there was more: “We are and will remain a bank. We will continue to help clients save, borrow, invest, transact, and we will provide them advice.”

Then Friday came, and Citi reported an $8.29-billion net loss, and a new Citi was announced. This latest iteration will comprise two operating units—the first being “Citicorp, which will focus on leveraging the competitive advantages of the company’s global universal bank in more than 100 countries,” the other called “Citi Holdings, which will be made up of brokerage and retail asset management, local consumer finance and a special asset pool—whose management will focus on tightly managing risks and losses, and maximizing the value of these assets,” according a company statement.

Citi’s 49 percent of Morgan Stanley Smith Barney falls under the Citi Holdings aegis; so does the definitive loss sharing program with the U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank of New York. That deal, which backstops $301 billion (down from $306 billion) of dubious loans and securities, has been finalized, Citi announced last Friday. Citi Holdings will have a first loss position totaling $39.5 billion.

The restructuring is not really a divorce. The two units share will share the same board of directors. Citi’s new configuration drew mixed reviews. “It’s unclear what short-term benefit the move provides,” notes one observer, adding: “The bank appears to be isolating its less appealing assets, though not completely—and who wants to buy a built-in $39-billion loss?” Meanwhile, the backstopping agreement with the government and other cash infusions under the CPP pose share valuation challenges, some analysts believe.

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