Citigroup's Biggest Success Since 2009

On Monday, Citigroup (NYSE: C  ) surprised analysts and investors with first-quarter earnings that handily outpaced the consensus estimate. But even better than this was news that assets in its "bad bank" had shrunk to only 6% of the company's total.

Known as Citi Holdings, the segment was created by former CEO Vikram Pandit in the depths of the financial crisis to house a collection of "non-core" assets, including toxic mortgages, ownership interest in a retail brokerage, and billions of dollars' worth of derivatives tied to the housing market.

"Citi Holdings contains businesses and assets that are not core to our strategy," Pandit explained in 2009. "Many of these businesses were built as a product strategy that relied on the existence of the shadow banking system, which has clearly shrunk in the current crisis."

When first created, Citi Holdings accounted for roughly a third of Citigroup's assets -- a sad commentary indeed on the depths of the bank's problems at the time. The remaining two-thirds were housed in Citicorp, the so-called "good bank" geared toward "helping corporate clients and consumers with their local and global needs."

Pandit's strategy was to double down on Citicorp while distancing itself from the assets and businesses contained in Citi Holdings. Most notably, in the middle of last year, Citi Holdings sold its remaining interest in the Smith Barney brokerage franchise to Morgan Stanley.

To say that Citi Holdings has been a drag on Citigroup's performance would be a dramatic understatement. In the six years from 2008 through 2013, Citicorp earned approximately $72 billion. Meanwhile, Citi Holdings lost a staggering $62 billion, leaving Citigroup with a combined net income for the period of only $10.5 billion, or less than $2 billion a year. To put that into context, Wells Fargo earned $5.9 billion in the first quarter of this year alone.

Although it's true, as a Fortune columnist pointed out Tuesday, that Citigroup's most recent quarterly performance was due in large part to Citi Holdings, there's simply no doubt that the sooner Citigroup can fully and finally distance itself from this beleaguered unit, the better it will be for shareholders.

A bank without any of Citigroup's problems
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.


Read/Post Comments (1) | Recommend This Article (1)

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 April 16, 2014, at 3:47 PM, davidscott1 wrote:

    Citigroup has reported consolidated net revenues of $20.12 billion for first quarter FY14, which is a 2.2% fall year over year but 3.7% better than analysts’ estimates of $19.39 billion.

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: 2915859, ~/Articles/ArticleHandler.aspx, 8/29/2014 4:39:22 PM

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