Friday, March 12, 2010

Shrinking CITI

Vikram Pandit told the US Congress that he expected to see Citigroup return to profit of around $20 bn by the end of 2011. He also proposes to sell 40% of Citi. In other words,Citigroup will shrink quite a bit even as it turns profitable. This is an acknowledgement that Citigroup is too big to be profitable, quite a reversal from the earlier credo that it could become more and more profitable through mergers and acquisitions.

Citigroup will be a leading case of a bank relinquishing size even without regulatory norms requiring them to do so- the proposed norms that would link bank capital to size have yet to be announced.

Separately, in an interview with FT, Pandit has spelt out what the focus of the restructured Citi would be:

The US consumer business is among Mr Pandit’s four priorities for investments once Citi stops losing money. The others are retail banks in emerging markets, the cash management unit and equities and commodities in the investment bank.

There is a bit of eastern philosophy in the interview for those interested:
"Doing the right thing for all our stakeholders – our clients, our shareholders but also other parts of society. We need to understand and embrace the responsibility that is put on banks by the general public

This belief was shaped by my Eastern upbringing, the belief that if you don’t do right now you will pay in the next life, and the importance I attach to reputation and credibility".
Pandit's remarks require a little tweaking. If he doesn't do the right thing, he and Citigroup will pay in this life, not the next.

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