Citigroup aims to sell $400 bn in assets in three years’ time

NEW YORK: Citigroup, the largest US bank, said on Friday it plans to shed $400 billion of assets within three years and boost revenue by up to 10% annually in a bid to restore profitability after huge losses tied to flagging mortgage and credit markets.

Vikram Pandit, who became chief executive in December, announced the plans at a much-awaited presentation to investors and analysts. He has faced growing demands from investors to slash costs, shed poor-performing businesses, and reinvigorate a stock price that has fallen more than half in the last year.

Citigroup has lost nearly $15 billion over the last two quarters, and suffered more than $45 billion of write-downs and credit losses since last summer, as the housing slump deepened, subprime mortgages imploded, and credit markets tightened. More jobs will be cut, on top of 13,200 cuts announced this year.

“It’s a net positive for Citi just to shrink,” said Henry Asher, president of Northstar Group, a New York money manager.

Some investors have viewed Citigroup, built over nearly two decades by Sanford ‘Sandy’ Weill into a behemoth with $2.2 trillion of assets that operates in some 106 countries, as too big to govern. Charles Prince, who quit as chief executive in November, routinely rejected that accusation. “Pandit is telling investors he is going to try to restructure,” said Tom Sowanick, chief investment officer at Clearbrook Financial in Princeton, New Jersey. “He seems to have a different heart than Sandy Weill and Chuck Prince.”

In afternoon trading, Citigroup shares fell 20 cents to $24.10 on the New York Stock Exchange.

Pandit said Citigroup has about $500 billion of noncore, "legacy" assets, an amount he said was not "trivial," and expects to reduce that to less than $100 billion in two to three years, largely through sales.

Unlike Weill, Pandit said he doesn't see the bank as a "financial su-permarket," but said he is committed to struggling units such as U.S. consumer banking and credit cards.

To help market itself, Citigroup is reintroducing the "Citi never sleeps" tagline, among the best-known marketing slogans in U.S. corporate advertising.

Pandit is targeting $15 billion of benefits from the restructuring, largely through cost cuts, with a goal of generating 18 percent to 20 percent return on equity.

"The asset mix is like hardware," he said. "We've got great hardware. The real question is the software." Pandit said he plans to shed assets including real estate, leveraged loans, complex debt tied to subprime mortgages, and structured in-vestment vehicles.

Some investors said shedding assets may be an uphill struggle, given tight credit markets, and could lead to further write-downs.

"There are a lot of assets that, frankly, they can't punt, because there's no bid for them," said Mirko Mikelic, a portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. "The problem is, how much more capital do these guys need?"

Pandit has also slashed Citigroup's dividend 41 percent, and the bank has raised more than $42 billion of capital since the fourth quarter. "In this environment, excess capital is absolutely a strength," Pandit said.

Still, the magnitude of Citigroup's asset sales may prompt fresh speculation the bank will eventually break up. "Size is not necessarily providing a tremendous advantage," said Jean-Marie Eveillard, a portfolio manager at First Eagle Funds. "Finance, to some extent. is a commodity business. The returns on capital, the re-turns on equity at 20 to 25 percent, I don't think that's coming back."

Pandit is a former top investment banking executive at Morgan Stan-ley. His inexperience in consumer banking, Citigroup's largest unit, remains an issue for some investors.

"It concerns me that they brought in somebody to run this thing who doesn't have experience in that area," said Jim Huguet, chief execu-tive of money manager Great Companies LLC in Tampa, Florida. "Jump back into Citigroup? No, I'm not. I'm not sitting here waiting on the sidelines saying 'Go, Citi, go.

'" Citigroup said it is targeting annual revenue growth of 8 percent to 10 percent.

Part of that may involve expending areas of the investment bank where Citigroup is underweighted, including prime brokerage, deriva-tives, and electronic trading, Pandit said.

He also said that unit will try to reduce risk, and stop doing business with unprofitable clients. "You can be sure we will properly understand the risks we're taking, and if we can't get that right, nothing else I'm going to say is going to matter," Pandit said.

Chief Financial Officer Gary Crittenden added that senior executives will tie compensation to the success of the restructuring. "Our wallets and our hearts are going to be in the same place," he said. Citigroup also said it planned to add private bankers and offices for high net worth clients around the world.