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Citigroup Goes To Sleep, the End of an Banking Empire

Companies / Credit Crisis 2009 Jan 14, 2009 - 09:31 AM GMT

By: Mike_Shedlock

Companies Best Financial Markets Analysis ArticleIt's the end of the line for Citigroup. The "group" will soon be gone as Pandit Dismantles Weill Empire to Salvage the Bank Within Citi .
Vikram Pandit is unraveling his empire to save his bank. Citigroup Inc.'s chief executive officer said yesterday he would cede control of the Smith Barney brokerage to Morgan Stanley. Pandit may also dump the CitiFinancial consumer-lending unit, tag Tokyo-based Nikko Asset Management Co. for eventual sale and rein in trading with the bank's own capital, people familiar with the matter said.


Some current and former Citigroup executives place the blame for the firm's troubles on Weill. He refused to spend enough on technology and failed to integrate the new companies he acquired, say people familiar with the matter.

“Each business has been operating with its own back office,” Pandit told investors and analysts gathered in New York on May 9. “We have 140,000 people in IT and operations. We have 16 database standards. We have 25,000 developers. This results not only in waste but doesn't give us any opportunity to leverage our organization. That's massively inefficient. We're finally going to merge it all.”

What Pandit meant to say was "We're finally going to dump it all. The Fed has forced my hand. The Citi that never sleeps, is about to."

Goodbye Citigroup, Hello Citibank.

On January 10 in Citigroup Pieces For Sale, Starting With Smith Barney I wrote

Kiss Citigroup goodbye, at least as you now know it.
Let's see if Citigroup's card unit is next on the block.
Let's also watch how many heads roll in a sale of Smith Barney to Morgan Stanley.

Citigroup IT jobs At Risk

It's safe to say that a substantial number of the 140,000 people in IT including 25,000 developers are about to do their final conversion. IT jobs are not easy to get, especially large mainframe banks jobs. I have some friends there, and I wish them well.

Capital Drought

The breakup of Citigroup shines a glaring spotlight on Bernanke's pretending this is all some sort of liquidity crisis. The reality is Citigroup Crisis Is Emblem of Capital Drought .

Time and again, big banks such as Citigroup Inc. argued that irrational and seized-up markets, not the woeful state of their balance sheets, were to blame for convulsing share prices.

For more than 18 months, the government went along with that thinking. Instead of demanding that banks recognize their losses, overhaul operations and quickly raise equity from private sources, regulators bet a flood of money would unclog credit markets.

When that didn't work, the government doled out billions of dollars to more than 100 banks through the Troubled Assets Relief Program, or TARP, again with few demands that banks take harsh medicine. That hasn't done the trick either.

The reason is pretty simple. This has never been a liquidity crisis. It's a capital crisis. Namely, investors don't think banks have enough of it, especially when it comes to tangible common equity.

Citigroup is a dramatic example. Its tangible common equity was 2.41 percent of tangible assets at the end of the third quarter. That was too low for investors' liking and below peers such as JPMorgan Chase & Co. and Wells Fargo & Co.

Citigroup's Equity Is A Mirage

Yesterday in Bernanke Hints Banks, Economy In Much Worse Shape Than Previously Admitted I translated a statement made by Bernanke to "Banks are in much worse shape than we have admitted previously. More taxpayer money is needed to prop up these failing banks."

A sharp reader corrected me as follows "Banks like Citigroup are not failing banks, they are failed banks. If your only source of funds are the politicians handing out taxpayer money, you've already failed , you're bankrupt."

Indeed, Citigroup would easily be seen as bankrupt if its SIVs were brought back on the balance sheet and all of its assets marked to market. The same applies to dozens of other banks as well. The entire US banking system is insolvent. And if you read between the lines, that is exactly what Bernanke said yesterday.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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