Stock rises after company announces split.
Citigroup Inc posted an $8.29-billion fourth-quarter loss, completing its worst year, as the credit crisis eroded mortgage-bond prices and customers missed more loan payments. The stock rose after the company announced plans to split into two.
The net loss of $1.72 a share compared with a loss of $9.8 billion, or $1.99 a share, a year earlier, the New York-based company said in a statement on Friday. Excluding a $3.9-billion gain from the sale of a German consumer bank and other results from discontinued operations, the bank’s loss was $2.44 a share. On that basis, the loss was more than twice as wide as the $1.08 average estimate of analysts in a Bloomberg survey.
As Citigroup plunged 77 per cent last year in New York trading, the bank was forced to accept $45 billion of the US government’s rescue funds. Chief Executive Officer Vikram Pandit agreed this week to cede control of Smith Barney brokerage to Morgan Stanley. He also said today that he planned to eventually sell the CitiFinancial consumer-lending unit and Tokyo-based Nikko Asset Management Co, after moving them into a new unit called Citi Holdings.
Citigroup climbed to $4.26 in New York from $3.83, after plunging 23 per cent on Thursday on concern the bank may have to seek more aid from the government.
Citigroup’s announcement came as Bank of America, the biggest US bank by assets, received emergency funds from the government to support its acquisition of Merrill Lynch. The Charlotte, North Carolina-based company, reported a loss of $1.79 billion and cut its dividend to 1 cent a share.
Citigroup plans to form a new business called Citicorp to hold units it wants to keep. They include branch banking, corporate lending, securities underwriting, transaction processing and private banking.
The bank will also create Citi Holdings for non-core businesses including CitiFinancial, Primerica Financial Services, brokerage, retail asset management, and a special asset pool consisting of the assets the US government agreed in November to guarantee.
A dwindling capital cushion and sinking stock price forced Pandit to abandon Citigroup’s decade-old strategy of providing investment advice alongside branch banking, stock underwriting and corporate lending. He is shedding units to free up capital and save the bank from insolvency.
They are going to try to home in on what is worth something, and try and sell the pieces that they really can’t value, Todd Colvin, vice-president of MF Global Inc, said in a Bloomberg TV interview.
CitiFinancial and Primerica were both building blocks of the colossus that former CEO Sanford Sandy Weill assembled during his 17-year acquisition spree. The company solidified its strategy of serving corporate and individual clients around the world with a range of financial services in 1998, when Weill’s Travelers Group Inc merged with John Reed’s Citicorp to form Citigroup Inc.
Citigroup plans to put Smith Barney into a $21-billion joint venture and relinquish majority control to Morgan Stanley. The deal, which bolsters Citigroup’s capital base with a $5.8 billion pretax gain, came less than two months after Pandit told employees he didn’t want to sell the business.
The plan to cut off non-core businesses in a deteriorating economy may put the bank into a deeper hole, John McDonald analyst at Sanford C Bernstein wrote in a January 14 report.
It will likely be difficult for Citi to effectively dispose of assets and businesses in the current environment, McDonald wrote. Any new solution is likely to need an incremental infusion of common equity, either from the government, private investors or the public markets, any of which is likely to be dilutive to existing Citi shareholders.
