Citigroup Looks to Slim Down, Shed Over $400 Billion in Assets

Citigroup Looks to Slim Down, Shed Over $400 Billion in Assets
By KEVIN KINGSBURYMay 9, 2008 11:47 a.m.
Citigroup Inc. plans to wind down more than $400 billion in assets over the next two to three years as the financial-services giant moves to slim down under new Chief Executive Vikram Pandit.
The disclosure is part of the company's presentation at its annual investor & analyst day.
Citi has recorded some $40 billion in write-downs the past three quarters amid the fallout from the credit crunch and seen credit costs surge amid increased delinquencies and charge-offs. As a result, the company has raised roughly $40 billion in new capital in recent months, including some $12 billion the past several weeks.
Citi said it had nearly $500 billion in so-called legacy assets as of the first quarter, nearly half of which being low-return. Nearly two-thirds is in consumer banking and one-third in securities and banking segment. The company plans to shed all those assets from securities and banking -- excluding alternative investments -- and more than 50% at consumer banking. The company plans to cut the amount to under $100 billion in two to three years.
Beyond reducing legacy assets, Mr. Pandit's plan calls for focusing on returns, increasing asset productivity, managing risk and re-engineering the company's cost base. Citi has long been criticized for having a bloated cost structure, as expenses long surpassed revenue growth under former CEO Chuck Prince.
The company is also targeting annual revenue growth of about 9% a year, annual earnings of at least $20 billion and return on equity -- an important measure of profitability at financial-services firms -- of 16% to 18%.
Mr. Pandit said he envisions the bank's return to profitability will last through three phases, during which he says Citi must "get fit," then "restructure," and finally "maximize." As if to head off investor restlessness, Mr. Pandit said that the phases "could" overlap, and quicken the bank's progress.
Mr. Pandit also addresses the recent shake-ups at the firm's securities and banking unit -- the very business that has cost Citi tens of billions in losses from bad bets on subprime mortgages.
"We're looking at everything," Mr. Pandit said of the unit's long-term prospects, but added that Citi intends its securities business to eventually produce a return on equity of "18-20%."
Mr. Pandit stressed that such progress won't come quickly, however. The unit's performance will be "lower, clearly, for the next couple of years," he said.