Now It's Sandygroup

John Reed's departure gives Weill free rein at Citigroup

Citigroup co-Chief Executive John S. Reed's retirement in mid-April will leave Sanford I. Weill, 66, sole ruler of a $170 billion empire stretching over 100 countries. Many analysts are guessing that Weill, free from Reed's characteristically cautious approach to mergers, will switch to what he does best--buying up companies and squeezing out costs, especially in the U.S., where financial services firms are cheap. Citigroup, says Raymond James & Associates banking analyst Richard X. Bove, will become "maniacally aggressive."

Not so fast, says Weill. Although he concedes that there are financial services firms that could be considered bargains in the U.S., "it's a little too early to tell" whether or not any of them will work with Citi's strategy. "We have to see what can be done with a branch," Weill says, adding that he's not convinced that Citi needs to expand its physical presence.

READY CASH. There's no lack of buyout candidates among financial services companies. Banks are cheap, particularly those that choked on bungled mergers. Both Bank One and First Union, for example, have struggled to integrate acquisitions and are trading at around 1.5 times book value, vs. Citi's 3.7. Citi, already the nation's largest credit-card lender, could achieve even greater economies of scale by buying Bank One's $70 billion credit-card portfolio.

Investors have also shied away from nonbank finance firms, making them bargains, too. Associates First Capital Corp., a Dallas-based consumer lender, could be a buy, say analysts.

Citi is one of the few U.S. financial groups with the currency to make acquisitions. Its stock trades around $50, off a 52-week high of $60.125, but stronger than most of its peers. The reason for that strength is Citi's profitability: Analysts expect earnings to rise nearly 20% this year. They say Weill could also free up a lot of cash by trimming Citi's global banking network--a hallmark of the Reed era. Weill insists he's committed to global banking. But analysts note it earns less than domestic banking. Citibank North America, for instance, is the group's most profitable unit, with a 4.14% return on assets.

Although Reed was responsible for building that unit over his 35 years at the bank, it's Weill's sheer force of will that seems to inspire confidence in investors. "They're both type-A personalities. Sandy is just A-plus," said Timothy M. Ghriskey, senior portfolio manager at Dreyfus Corp.

TO-DO LIST. Weill still has some unfinished business to complete. The Travelers-Citicorp merger is "roughly two-thirds complete," says one of Citi's few detractors, Credit Suisse First Boston Corp. bank analyst Michael L. Mayo, who rates the stock a sell.

But that's a minority opinion. And it is unlikely to deter Weill from pursuing any good deals he spots. Especially as he's now in sole charge.

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