Citigroup Posts $8.3 Billion Loss, Will Split Up Bank
After posting an $8.9 billion fourth-quarter loss - nearly double what analysts initially predicted - New York-based Citigroup is resorting to drastic measures as it tries to raise sorely needed capital. The banking giant will split into two separate entities: Citicorp and Citi Holdings.
Citicorp will focus on traditional banking, with Citi Holdings to include the bank’s asset management and consumer finance units, as well as some $300 billion of Citigroup’s most risky assets. Citi Holdings also will oversee Citigroup’s 49% stake in the recently announced venture with Morgan Stanley.
By splitting in two, CEO Vikram Pandit believes Citigroup will be able to free up its capital, while at the same time unload the more troubled assets that have continued to plague the bank for the past year.
Citigroup’s fourth-quarter loss also included $7.78 billion in write-downs on subprime mortgages, collateralized debt obligations and structured investment vehicles. In total, Citigroup’s losses have surpassed the $90 billion mark over the past 15 months.
During the Jan. 16 conference call with analysts, Pandit also noted the likelihood of future layoffs. The bank, which already reduced its workforce by 52,000 in 2008, is expected to let go another 23,000 employees by the end of December 2009.
Citigroup’s ongoing financial issues are reflected in its share price, which plunged nearly 90% in 2008. In October, the bank was forced to accept an emergency rescue of $45 billion from the U.S. Treasury.
Meanwhile, news of Pandit’s restructuring plans did little to improve investor confidence. Citigroup stock was trading at $3.50 on Jan. 16. Two years ago on that day, the stock price was $54.39.
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