© The Financial Times Ltd 2016 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: January 14, 2009 9:45 am
“Global universal bank is the right model”, hollered one slide from the presentation to employees by Vikram Pandit, Citigroup’s chief executive, in November. Then, faith in the bank’s strategy was a shred of hope against thousands more job losses. But almost 11 years after the $70bn merger that formed Citi, Mr Pandit now stands ready to split the financial behemoth.
This, though, may not be a strategic change of heart concerning the merits of across-the-spectrum banking. The dismal state of banking balance sheets has undermined belief in the value of assets. Nothing less than a division of Citi’s business to create a separate “non-core” unit is now required to put its heap of noxious assets out of sceptical investors’ minds. There is, however, at least one risk. The required pricing of unwanted businesses and assets could produce a reassessment of valuations at peers.
What, then, will remain with Citi? After all, there are few high-margin investment banking products now in demand. Consumer and commercial banking face rising losses. But shorn of the burden of Citi’s problem assets – plus riskier consumer lending and investment banking businesses – many core businesses will eventually recover their earnings power come recovery. Citi seems likely to regroup round its retail banking, commercial operations and bog-standard services such as custody and clearing.
Critics who have (rightly) questioned the benefits of diversification within a banking “supermarket” should not trumpet victory too loudly. For example, profitable corporate banking relies on peddling ancillary investment banking services to customers. Many of those will remain. Citi’s break-up, too, is likely to remain superficial until improved confidence enables its nasties to be sold or spun off. But even if Citi moves from universal banking to a mere galaxy of financial services, consolidation as a tool to solve banking’s woes now has an upper bound. Banks really can be too big to succeed.
Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.
If you have questions or comments, please e-mail firstname.lastname@example.org or call:
US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.