Citigroup Inc. Chief Executive Officer Vikram Pandit said supermarket banking, a strategy pursued by his firm in past decades to provide all financial products including insurance, no longer fits the times.
The 1998 merger of Citicorp with insurer Travelers Group Inc. “didn’t turn out to be everything people thought it was going to be,” Pandit said today during a presentation at Singapore’s Lee Kuan Yew School of Public Policy. “The focus of that merger, which was supermarket banking or financial supermarket, is a strategy that I don’t believe is right for the times. Not only that, I don’t believe it’s right for our bank.”
Banking leaders including Pandit predecessor Sanford “Sandy” Weill and JPMorgan CEO Jamie Dimon are debating whether big banks should break up or limit their products in the wake of 2008’s credit crisis. Pandit, who has been reorganizing New York-based Citigroup after repaying taxpayer-funded bailouts, said in November he no longer considers the retail lender and investment bank to be a supermarket.
“Getting out of that strategy is what we’ve done,” said Pandit, 55. “And now we focus on what is really the core banking business of this institution.”
Citigroup, the third-biggest U.S. bank, had $1.92 trillion of assets at the end of June and employed more than 260,000 people. The lender operates in more than 100 countries with services include trading, underwriting, asset management, treasury management, private banking and commercial, mortgage and consumer lending.
More than half of Citigroup’s $38 billion revenue for the first six months of 2012 came from the global consumer banking unit, with offerings such as Chinese credit cards and Mexican personal loans. The securities and banking division, which includes trading and investment banking, accounted for $10.7 billion. The transaction-services unit had $5.55 billion.
Citicorp was a commercial bank when it combined with Travelers, which owned the investment firm Salomon Smith Barney Holdings Inc. The merger went ahead after the repeal of the Depression-era Glass-Steagall Act, which had separated traditional banks from those involved in capital markets.
Citigroup spun off Travelers Property Casualty Corp. in 2002 and disposed of other businesses and assets following 2008’s credit crisis. It still ranks among Wall Street’s five biggest investment banks.
“We’re back to what Citi was prior to that merger,” focusing on “simple” and “boring” business, Pandit said. “Yes, we have some additions, and some of our capital markets capabilities that came from there, but these are capabilities Citi would have built anyway over time independently in response to the market.”
Pandit’s comments were “unbelievable,” said Michael Mayo, an analyst at CLSA Ltd. and author of “Exile on Wall Street,” in a phone interview. Citigroup’s investment bank alone is three times bigger than all of Citicorp was in 1997, said Mayo, who has an underperform rating on the shares. Today’s lender is also more complex and operates in more countries than its predecessor, he wrote yesterday in a note to clients.
“They are no more the company of 1997 than Bill Clinton is still president, ‘Candle in the Wind’ is the top song and ‘Titanic’ is going to win the Oscar,” said Mayo. “So don’t go telling investors that it’s essentially the same company as it was in 1997, that’s not the case and by the way, it’s not a close call.”
Weill, 79, who engineered the merger of Citicorp and Travelers, said last month that it’s time to break up the largest financial firms to avoid more bailouts. Investment banks should be split from deposit-taking commercial banks, he said.
Citigroup almost collapsed in 2008 amid losses tied to subprime mortgages and took a $45 billion bailout. Pandit, who became CEO in 2007, created the Citi Holdings unit in 2009 to dispose of more than $600 billion in unwanted assets.
He has since sold private-equity stakes, auto loans, mortgage portfolios, Student Loan Corp., and life insurer Primerica Inc. Citi Holdings, which has posted almost $20 billion in losses since inception, still held about $191 billion of assets as of June 30, 28 percent less than a year earlier.
“It is clear in hindsight that, crisis or no crisis, Citi had to be restructured,” Pandit said. “Citi today is smaller, simpler, safer and stronger.”