Top Firm Said Likely To 'Shrink Itself' By A Third
According to the newspaper's unnamed sources, Citi will also soon announce 'steps to shed two consumer-finance units, (CitiFinancial and Primerica Financial Services), and the company's private-label credit-card business'. The firm will also 'substantially' cut back on prop trading over at the investment bank, as it scales back on risk.
Although CEO Vikram Pandit had hoped that he wouldn't have to break-up the empire, the extent of the financial and economic crisis, and the impact that this has had on Citi, now makes this inevitable. Bloomberg quotes Bill Smith, founder of Smith Asset Management, who said that the financial supermarket model 'was never going to work. You had three management teams that all failed to integrate this. You will not recognise this company within 12 months'.
One move that has been seen in a positive light, at least by clients, is the Smith Barney deal. Clients are expected to benefit from an improved product range and a better quality service as a result of the tie-up with Morgan Stanley. And a lot of the financial advisors themselves look likely to be happy. Not only does it look like most of their jobs are safe, but The New York Post reports that up to $3bn has been set aside for retention bonuses for key performers.
As Citi realises a $6bn post-tax gain on the deal (some $4bn will be paid over to the US government in tax), some feel that the merger is not such good news for Morgan Stanley. The Wall Street Journal's Deal Journal predicts that the deal will only cause CEO John Mack 'a big headache and an even bigger mess', as the new brokerage boss, James Gorman, 'meld(s) two distinct broker cultures, market(s) an unwieldy brand name and constantly juggle(s) the interests of his two mammoth shareholders'.
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