Is Citigroup Derailed?

If it seems too good to be true, it probably is. After a decade-long campaign to take the financial services world by storm and become the world's premier "supermarket" bank, Citigroup (NYSE: C  ) is shrinking in more ways than one.

Just over a month after announcing plans to ditch more than $400 billion of assets, Citigroup now plans to cut as much as 10% of its investment-banking staff. With 65,000 employees in that division, the cuts could put pink slips on thousands of desks this week.

The cuts shouldn't come as much of a surprise. For one, Citigroup is enormous, with about 350,000 employees spanning the globe. Such a massive organization only works wonders if it can keep tabs on what's going on and keep expenses in check. Citigroup struggled with both. It's also not surprising considering that financial services firms, obviously, don't manufacture anything; their product is the service the employees produce. When revenues decline, there's only one way to even things out: cut jobs.

So now with the investment banking world in shambles, Citi has a serious question to answer: Where does it fit? Citi's alternative asset push went down in flames after recently ditching the hedge fund CEO Vikram Pandit founded. It's still besieged with write downs and a never-ending battle for more capital.

Meanwhile, Goldman Sachs (NYSE: GS  ) appears to hold the investment banking baton, JPMorgan Chase (NYSE: JPM  ) is up-and-coming with its integration of Bear Stearns' choice assets, and a few select banks like Wells Fargo (NYSE: WFC  ) have pretty much skirted around the subprime drama.

Where's that leave Citi? What shareholders need to know is where Pandit plans to take the company. If the supermarket bank idea has to be scrapped, what will Citi's new niche be? If some divisions have to be pared back permanently, should investors ever hope for record profits to return? If Pandit has never run a healthy bank, how does he plan to revive an ailing one?

Slashing jobs and cutting costs doesn't give Citi direction; it's just an admission that its previous plan didn't work. For now, what this Citi will come to look like is quite a blur.  

More banking Foolishness:

Fool contributor Morgan Housel doesn't own shares in any companies mentioned in this article. JPMorgan Chase is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.


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  • Report this Comment On June 24, 2008, at 5:45 AM, olam01 wrote:

    I think that this is the One Million dollar question "If Pandit has never run a healthy bank, how does he plan to revive an ailing one?" I wonder why the board didn't ask this question. Frankly, his ability to do the job would be similar to a heart surgeon being able to successfully perform surgery without any prior practice -- I certainly wouldn't want to be the surgeon's first patient.

  • Report this Comment On June 26, 2008, at 5:16 AM, rm96696 wrote:

    There is only one certainty: pandit will emerge from the debacle a very wealthy man even if he does nothing of value.

  • Report this Comment On June 27, 2008, at 1:26 PM, williambanzai7 wrote:

    Citi's current demise is an indictment of the greed and stupidity that led to deregulation of the banking sector. Nothing has changed since the days when Glass Steagall Act was passed.

    "Many of the abuses in investment banking have resulted from the incompetence, negligence, irresponsibility or cupidity of individuals in the profession." The Fletcher Report 1934

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