Citigroup Poised For Change

[May 13, 2008.]

 

Citigroup, a company created in 1998 from a merger between Citibank and Travelers Group, is planning to reverse the ill fortunes of Citibank, America's largest bank.

A new CEO has taken control of Citigroup. Vikram Pandit took the position of Chuck Prince as CEO of Citigroup at the end of 2007. Pandit has looked over and analyzed the company ever since his appointment.

Now, he is full of plans for the company that he says will lead to positive change.

Positive change is very welcome in the wake of the subprime lending crisis of 2007, which had a powerful negative effect on Citibank. During the last quarter of 2007, Citibank suffered a loss of almost $10 billion.

This crushing number was what forced Pandit's predecessor, Prince, to resign.

The losses didn't stop there. The bank lost $5.1 billion during the opening quarter of 2008; losses related to subprime loans and credit amounted to over $40 billion. However, Pandit plans to turn the situation around. He has already caused the bank to gather up $44 billion in capital, more than any other financial institution hurt by the subprime crisis has managed to do.

How does the new CEO intend this to happen?

First, Pandit said, the company will get rid of $400 billions' worth of assets--at this point, about 22% of the company's assets in total--over the course of the upcoming years. These assets are inessential, according to Pandit, and getting rid of them give the company much-needed capital to work with elsewhere.

The next step for Pandit is getting the company to reach an annual growth rate of approximately 8% to 10%. This will involve reducing the company's risks, while increasing the profitability of those assets that the company does choose to keep.

Financial analysts seem optimistic about Pandit's plans. Robert Olstein, an analyst and chief investment officer with Olstein Capital Management, explained Pandit's actions. "He's carting off the non-significant operations and raising money so that he can reinvest in the business he's in, which is loaning money," said Olstein to Bloomberg News.