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January 14th, 2009

Citigroup: Good Bank, Bad Bank

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In an effort to convince investors of their viability, Citigroup has decided to shrink its balance sheet by 1/3, diverging a majority of their bad business and assets into a separate entity. Citi’s Chief Executive Vikram Pandit has ultimately agreed to dismantle the financial supermarket into a more streamlined unit which is expected to focus upon larger corporations and wealthy individuals. In essence, Citi will create a good bank and a bad bank:

Bankers said the new unit would remain on the company’s books but its results would be reported separately from the rest of the business in an effort to convince investors of the company’s viability. The non-core unit could be eventually sold in parts or as a whole or spun off once market conditions improved, they added.

Who would be the potential buyer for these toxic assets? In his speech yesterday in London, Fed Chief Ben Bernanke addressed the possibility of the Federal government purchasing assets from so called “bad banks.” The other possibility is that various investors interested in “vulture funds” will be willing to purchase the assets at extremely discounted prices.

While this approach is nothing new, it could provide Citi with a unique opportunity for a drastic turnaround — given a buyer for their assets is interested. The new structure has proven worthy in past, yet some have called the strategy only a temporary fix.

For more about the good/bad bank concept, be sure to read this Wall Street Journal blog entry.

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One Response to “Citigroup: Good Bank, Bad Bank”

  1. Joe Kukowski Says: December 26th, 2009 at 8:31 pm

    I just quit being a customer at citi bank cards because they tell you your a preferred valueblecustomer than raise your intrest ratesto help pay the millions in bonuses to the ceo’s so i’ll take my bussiness elsewhere and everyone else who just had their rates raised should to

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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