In Bid To Survive, Citigroup Looks To Shrink

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Citigroup, long the definition of a financial services conglomerate, is planning to get smaller fast. Citi announced Tuesday that it is splitting off its brokerage unit, Smith-Barney. Citi is reportedly preparing to undo many of the acquisitions that took place over the past decade.

MICHELE NORRIS, host:

From NPR News, this is All Things Considered. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block. Citigroup spent the past decade getting bigger and bigger. Now the giant financial services company is about to get smaller. On Friday, Citigroup is supposed to unveil its latest plan to turn its fortunes around. The company is expected to announce it will be selling off major parts of its business. As NPR's Jim Zarroli reports, it's a key turning point in the world of finance.

JIM ZARROLI: For several years now, Citigroup has been the problem child of a troubled industry, a company plagued by management turmoil and eroding investor confidence. Now it may finally be facing its day of reckoning. Nancy Bush is a banking analyst.

Ms. NANCY BUSH (Banking Analyst): There are a number of decisions that are going to have to be made about whether they're going to continue to try to be a, quote, "universal bank," or whether they're going to just come down to several niche businesses.

ZARROLI: At one time, Citigroup was the biggest financial services company in the world by assets, and it got that way, in large part, through lots and lots of acquisitions. The biggest by far was the merger with the insurance giant Travelers more than a decade ago. At the time, Citigroup chairman John Reed said customers no longer wanted to go from place to place for banking and insurance services. They wanted one-stop shopping. Here he is at the press conference announcing the deal.

(Soundbite of press conference)

Mr. JOHN REED (Former Chairman, Citigroup): We have an opportunity to put together a business proposition for that customer. They aren't going to think we're a conglomerate. What they're going to think is, you know what, I can go to this company and get my needs satisfied in a way that provides for what I want.

ZARROLI: But as with the merger of AOL and Time Warner, putting all those disparate pieces together proved a lot tougher than anyone expected. NYU adjunct management professor Robert Lamb served as a sometime adviser to former Citigroup Chairman Sandy Weill who masterminded many of the mergers.

Professor ROBERT LAMB (Adjunct Professor of Management, Leonard N. Stern School of Business, New York University): The concept with Sandy was simply acquisition, acquisition, acquisition. He did not have that much interest in sticking around to organize the thing or, you know, make it work.

ZARROLI: The company struggled for years to right itself, and it might have prevailed had it not been for the housing bust. Citigroup was a big player in the market for risky mortgage-backed securities. Again, Nancy Bush.

Ms. BUSH: We've had bad management at that company for years. We've had an incoherent strategy. You've had, obviously now, nonexistent board oversight. And you overlay that with the worst economy in years, and bingo, this is what you've got.

ZARROLI: As the company's share price tumbled, investors pressured Citigroup's management to address what was happening. Last year, the company announced it was eliminating 15 percent of its enormous global workforce. It got a huge injection of capital from the federal government. Citigroup insisted its fundamental mission hadn't changed, but CEO Vikram Pandit told Charlie Rose last year the company was reexamining its size and scope.

(Soundbite of PBS interview)

Mr. VIKRAM PANDIT (CEO, Citigroup): It's a company that is being refocused on its uniqueness. A company where we're slimming down, we're simplifying, we're getting it more efficient and going back to our core purpose. And our core purpose is to be a bank.

ZARROLI: Still, faced with the prospect of another large financial institution failing, federal officials have reportedly been pressuring Citigroup to do more. And so Citigroup has begun divesting itself of some of its businesses. Not everyone is convinced Citigroup can find its footing.

Professor LAMB: I fear they have further to drop.

ZARROLI: Robert Lamb says Citigroup still has massive exposure to a lot of bad debt.

Professor LAMB: A number of pieces of Citigroup have not yet been looked at in, you know, under a microscope. And those have yet to be investigated.

ZARROLI: Even though the government has guaranteed some of those debts, Lamb says a lot of potential buyers of its assets will be afraid to do deals with Citigroup. That will make it a lot harder to unravel the vast financial empire that Citigroup spent years building up. Jim Zarroli, NPR News, New York.

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