Good news! Citigroup's (NYSE:C) results are much better than previous quarters.

Not-so-good news: They're still utterly dreadful.

Citigroup's second-quarter net loss came in at $2.5 billion, or $0.54 per share, down from the $1.24 per share earned in the same period last year. Revenue dropped 29% from the year before, to $18.7 billion, fueled in part by a grisly 94% plunge in securities and banking revenue. Nonetheless, operating expenses still managed to nudge up 9% over last year. Baby steps here, people.

For the third quarter in a row (say it with me...) credit-related writedowns bogged down results. Pre-tax writedowns came in at $7.2 billion, which includes a $2.5 billion increase in loan-loss reserves. Yes, $7.2 billion is enough to make you want to pull your hair out, but let's keep things in perspective: First-quarter writedowns were $18.1 billion, while Q2 saw charges of nearly $16 billion. For shareholders, that's strike three for Citigroup -- but at least it's swinging the bat a little harder.

The recent results gave us our first glimpse at Citi's proposed $400 billion diet. During the quarter, it trimmed $99 billion from the balance sheet. What assets got sold? Citi provided no details, aside from describing the castoffs as "legacy assets." Given the current market for bank assets, it's safe to assume Citi parted with them at near fire-sale prices.

Adding to Citi's plan to slim down, nearly 6,000 employees were let go during the quarter. Despite giving legions of former Citi employees the boot, Citi managed to sneak in a jab in its press release, saying "Talent [was] enhanced [in the quarter] by strong new hires." Ouch.

What's next?
OK, so Citi isn't the next bank to go kaput, but its future is far from certain. Over the past decade, its niche in the financial world was centered on sheer size. It may not have been the smartest bank -- that goes to Goldman Sachs (NYSE:GS) -- but what it lacked in brains, it made up in brawn. It may not have been a titanic real estate player like Washington Mutual (NYSE:WM) or Wachovia (NYSE:WB), but it still managed to weasel its way in. Merrill Lynch (NYSE:MER) and Morgan Stanley (NYSE:MS) might be better-known for their brokerage and wealth-management units, but Citi didn't skimp there, either. Bank of America (NYSE:BAC) surpassed Citi in deposits, but it trudged along there, too. It may have never been the best at any one segment, but by golly, it was going to get its hands dirty in everything remotely entwined to financial markets. And it did.

But that plan seems to have failed -- or at least been less successful than Citi hoped. As I see it, Citi has a few options on the table. It can stomp its feet and continue its quest to become the world's financial supermarket; it can continue its diet and try to play alongside the other banks; or it can break itself apart. The last option seems most reasonable, and best for shareholders. When a company has piles of assets hastily glued together, and not much of a clue what to make of them, splitting them apart and allowing them to grow on their own can be a gift to shareholders. Citi undoubtedly has some great assets, but how it manages those assets is even more important.

If you're looking for a quick rebound in Citi's current form, forget about it. If you're hoping for a chance at realizing Citi's assets from a breakup, grab a drink and hang on tight.

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