Citigroup signaled the end of a decade-long experiment to create one-stop shopping for financial services – everything from consumer loans to investment banking to insurance from its former Travelers Co. unit – with its announcement that it is merging its Smith Barney brokerage into a joint venture with Morgan Stanley.
The deal, which will give Citigroup $2.7 billion in badly needed cash as it gives up control of Smith Barney, comes as the company still struggles in the aftermath of the mortgage and credit crisis.
There is speculation that CEO Vikram Pandit, who for months supported Citigroup as a “universal bank,” will be taking further steps to simplify and streamline the company.
Citi could soon shrink itself by one-third, according to a Wall Street Journal report today. The Journal says Citi is likely to announce plans next week to shed two consumer-finance units, the bank’s private-label credit card business and cut back on trading it does on its own behalf.
And many people on Wall Street believe Citigroup could be headed for an even larger-scale dismantling if the federal government – which now has a stake in Citi thanks to its recent bailout – has its way.
“I think within 12 months, Citigroup no longer exists,” said William Smith at Smith Asset Management, who owns Citigroup shares. He has been calling for a breakup of Citigroup for years, and believes the government will force that fate in piecemeal fashion over the coming year.
At 10 a.m., Citigroup shares traded at $5.13, down 77 cents, or 13 percent. (AP)
