NEW YORK (Reuters) – Citigroup Inc, hard hit by the global credit crunch, is expected to present plans to sell roughly $400 billion of extraneous assets when it meets with investors and analysts on Friday, people familiar with the situation said.
Newly-installed Chief Executive Vikram Pandit, scrambling to slash Citi's costs and get past credit market problems, also intends to reaffirm his promise to cut annual expenses at the largest U.S. bank by roughly 20 percent, one of the sources told Reuters on Thursday.
Citigroup declined to comment.
The sales could amount to nearly 20 percent of Citi's current assets, and according to the Financial Times, which first reported the story on Thursday, would take place over several years.
Although Citi has said previously that it plans to shed assets to improve its capital position, the magnitude of the potential sales struck some analysts as worrisome.
“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, which does not own Citi shares.
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.
The sources requested anonymity because the plan had not yet been announced.
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 other executives are expected to also fend off calls for a break-up on Friday when the company offers a four-hour presentation to investors and analysts.
They are instead expected to tout Citi's combination of consumer and institutional businesses, and recommend selling operations and assets outside those main areas.
Pandit's team is 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.
CONSUMER FINANCE, STUDENT LOANS, TRADING
Citi's U.S. student loan business may make sense to sell, after recent legislative changes and turmoil in the securitization market have made the business less profitable, an 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 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,” Russo.
Another fund manager added that Pandit's presentation of the plan may prove to be a turning point for Citi.
“Until we see the details, it's hard to know. Philosophically, I think it ought to be viewed positively,” said Anthony Muh, head of Asia Pacific for AT Asset Management in Hong Kong, which manages about $1 billion in Asian equities, but does not hold any Citi shares.
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 about Citi. 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 CitiStreet benefits servicing venture, commercial leasing business CitiCapital and the Diners Club charge card business.
Citi has also sold about $12 billion of loans linked to buyouts.
Another highlight of the meeting will be plans to slash as much as $15 billion of operating expenses. Last year, Citi's costs totaled 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.
By Joseph A. Giannone and Dan Wilchins
(Additional reporting by Jon Stempel in New York and Jeffrey Hodgson and Tony Munroe in Hong Kong)
(Editing by Kim Coghill)