Citigroup (C) May Have To Sell Smith Barney

Banking, finance, and taxes

Published: December 28, 2007 6:37 am

The market was full of talk yesterday about Goldman Sachs predictions that Citigroup (C) might have to write-off another $18.7 billion in CDOs in the fourth quarter. Word was that the big bank may have to cut its dividend by 40%.

Today’s Wall Street Journal writes that Citi and HSBC (HBC) are considering selling some of their modest-sized units. For Citi that might include its auto loan business or stakes it owns in financial services companies in South America. It is not clear what those businesses would bring, but it is not likely that the figure would be $5 billion or $10 billion.

Citi does have a business that is fairly independent of its retail banking, commercial bank, and investment bank operations. Smith Barney has 9.3 million client accounts and those represent almost $1.6 trillion in assets. Compare that to TD Ameritrade (AMTD) which has 6.4 million accounts and about $300 billion in client assets.

AMTD has a market cap of $8 billion. Smith Barney is probably worth 50% more than that, or $12 billion. A bank which is better off, like Wachovia (WB) which also has a large broker network, might view the asset as attractive.

Citi could obviously use the $12 billion and it is not clear that parting with Smith Barney does the firm any real harm. It is likely to be the first big asset to go.

Douglas A. McIntyre

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