Citigroup Hates Its Profitable Assets

Earlier this year, Citigroup (NYSE: C  ) sold 51% of its crown jewel asset-management business, Smith Barney, to Morgan Stanley (NYSE: MS  ) .

At the time, the deal made sense. Citi desperately needed capital, and a relatively riskless asset like Smith Barney could still fetch a reasonable price -- as opposed to financial assets, many of which couldn't have been sold at all.

Yet even as market liquidity comes roaring back, CEO Vikram Pandit now says Citi will likely eventually sell its remaining 49% stake to Morgan Stanley.

Smith Barney is one of Citi's only stable, consistently profitable, and still-promising assets. Over the past few years, wealth management has been one of the only firm contributors to the bank's bottom line:

Segment

2008 Net Income

2007 Net Income

Corporate

($954 million)

($1.6 billion)

Global Cards

$166 million

$4.7 billion

Consumer Banking

($12.3 billion)

$2.2 billion

Institutional Clients

($20.1 billion)

($4.2 billion)

Wealth Managmenent

$1.1 billion

$2 billion

Wealth management was never a big contributor, but it nonetheless contributed in good times and bad. You'd think a rickety bank like Citigroup would want that kind of stability. Just last November, Pandit himself remarked: "I have got no desire to sell Smith Barney. I love that business."

Other banks love it, too. Not only did Morgan Stanley rush for Smith Barney earlier this year, but Bank of America (NYSE: BAC  ) nearly killed itself getting its hands on Merrill Lynch, and Wells Fargo (NYSE: WFC  ) now has huge exposure to wealth managmenent thanks to the Wachovia acquisition. It's a good, profitable, low-risk, minimal-capital business that's bound to thrive in the future.

Citigroup is clearly struggling to find a direction. Or a profitable direction, at least. It's on a mission to become a slimmer, more focused bank known as Citicorp, but it's unclear how that niche will fit against stronger banks such as JPMorgan Chase (NYSE: JPM  ) .

And, really, all shareholders care about after the past two bloody years is profit. The wisdom of shedding one of Citi's last profitable units remains to be seen.

For related Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 18, 2009, at 12:42 PM, hermsoto wrote:

    i have been looking everywhere, but i cannot find any information on MJNA, which is some sort of medical marijuana distribution and taxing company.

    i looked everywhere, and there are no real articles on this anywhere,

    help?

  • Report this Comment On September 18, 2009, at 1:51 PM, VegasMartin wrote:

    It may not be a terrible move. Citigroup is looking to become leaner and meaner. It may have been a profitable area for Citi, but Citigroup has to focus on the core areas of their business that they need to improve upon.

    http://www.ShootTheBears.com

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 987602, ~/Articles/ArticleHandler.aspx, 10/24/2014 9:16:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement