NEW YORK (Reuters) – Citigroup Inc, hit hard by the global crunch, will announce plans to sell roughly $400 billion (205 billion pounds) of non-core assets when it meets investors and analysts on Friday, people familiar with the situation said.
Newly installed Chief Executive Vikram Pandit, scrambling to slash Citi’s costs and overcome credit market problems, also intends to reaffirm his promise to cut annual expenses at the largest U.S. bank by some 20 percent, one of the sources said.
Citigroup declined to comment.
The sales could amount to nearly 20 percent of Citi’s current assets and would take place over several years.
“This sounds like the beginning of a fairly long and ambitious process of house-keeping,” said Tim Hughes, head of sales trading at IG Index in London. “Companies like Citi can get too much of a good thing in terms of diversification, and lose focus on what they are actually doing.”
Although Citi has said previously that it plans to shed assets to boost its capital position, the magnitude of the sales worried analysts and is likely to prompt fresh speculation of a potential break-up of the Wall Street giant.
Pandit and other executives are expected to fend off fresh calls for a break-up on Friday, however, when the company offers a four-hour presentation to investors and analysts.
“The only reason you’d sell off that many assets is you have a lot more losses coming than you originally thought,” said Jim Huguet, co-chief executive at fund manager Great Companies LLC.
Since late last year, Citi has recorded more than $45 billion of writedowns and credit losses, raised more than $40 billion of new capital including $2 billion of preferred shares this week, and slashed its dividend 41 percent.
Precisely which non-core assets are for sale is unclear, but analysts speculated that consumer finance businesses in the United States, Japan, Mexico, and Germany are possible.
Citi shares in Frankfurt, among the most actively traded U.S. stocks in Germany, fell 1.5 percent by 0945 GMT.
Investors are impatient for improvement at Citi, whose share price has fallen more than 55 percent over the last year.
Pandit has faced demands from investors that he slash costs, shed poorly performing businesses and even split up the bank.
Some investors view Citi, built over two decades by Sanford “Sandy” Weill, as too big to govern, a charge that Weill’s hand-picked successor, Charles Prince, routinely denied.
Pandit and his team are expected to tout Citi’s combination of consumer and institutional businesses, and recommend selling operations and assets outside those main areas.
They are also expected to outline the bank’s focus on cash management, wealth management and cards as key businesses for the future, one of the sources said.
But analysts said the move would inevitably renew pressure on Citi’s top executives, and also on other large-scale banks.
“It’s a sign that the banking sector is heading into some sort of split-up of banks’ businesses. This Citigroup move might just be the beginning,” Marie-Pierre Peillon, head of equity and credit research at Groupama Asset Management, in Paris said.
Citi’s U.S. student loan arm may make sense to sell, after recent legislative changes and turmoil in the securitization market have made the business less profitable, one analyst said.
The Wall Street Journal this week reported Citi may sell Primerica, a consumer sales network for life insurance and investments. Citi should also look to sell assets on its trading books, which have contributed to much of the writedowns that the bank has taken so far , said Thomas Russo, partner at asset manager Gartner Russo & Gartner.
“It all depends on the price they get and how they do it, but if they can do it over time, and swear off the stuff, it could be good for Citi,” he said.
Investors have in recent weeks grown increasingly hopeful about the U.S. financial sector moving closer to the end of its difficulties after being slammed over the past year by a meltdown in the U.S. subprime mortgage market and ensuing turmoil in global financial markets.
Citi’s shares have risen 30 percent since mid-March, and closed on Thursday in New York at $24.30.
But concerns still remain. Its shares still trade at about their book value, while healthier banks’ shares typically trade well above their book value.
Citi’s Tier 1 capital ratio — a measure of the bank’s capital strength — is above 8.6 percent, based on March balance sheet figures and recent capital-raising efforts.
That’s above the bank’s internal targets, but the fact that Citi continues to raise equity, having issued perpetual preferred securities this week, makes some analysts wonder whether future writedowns will continue to be large.
Citi’s balance sheet currently weighs in at more than $2.2 trillion. Pandit has already been working at slimming down the bank’s assets, having agreed to sell Citi’s stake in its CitiStreet benefits servicing venture, commercial leasing business CitiCapital and the Diners Club charge-card business.
Citi has also sold about $12 billion of loans.
Another highlight of the meeting will be plans to slash as much as $15 billion in operating expenses. Last year, Citi’s costs totalled more than $61 billion.
The bank has announced 13,200 job cuts in 2008, though analysts say tens of thousands of further cuts may be needed. The bank ended March with 369,000 employees.