Citigroup: Bowing to the Inevitable
Citigroup’s (NYSE:C) move to spin off its Smith Barney brokerage unit into a joint venture with Morgan Stanley’s (NYSE:MS) wealth management business is widely seen as bowing to the inevitable: the dismantling of the financial hypermarket that was the brainchild of former CEO Sandy Weill.
Though the decision appears motivated less by strategic considerations than by the need to raise cash, the result is the same. “There is no other way to view this move, in our opinion, than as a way for Citi to raise cash prior to its fourth-quarter earnings release,” wrote Oppenheimer & Co analyst Meredith Whitney in a research note Wednesday. read full story.
Doug McIntyre at 24/7 Wall Street agrees: “Why did the deal happen? Citigroup needed the money. It is not more complex than that.”
“Citigroup was never a real company, from the day it was formed until today. With four huge business units and dozens of operations in scores of countries, the notion that having a consumer credit card operation under a common roof with a corporate lending business should be helpful to either one was ridiculous.”
Moody’s sees no ratings impact of the deal on either Citi or Morgan Stanley. Neither does Fitch. Nor Standard & Poor’s.
However, CreditSights views the sale of Smith Barney as a negative for the ratings.
Based on the sale of Smith Barney and the possibility for additional major divestitures, we are lowering our rating on Citigroup to A+.
“In our view, the most likely areas to pare back include some of the international banking units and transaction processing. We note that HSBC has publicly indicated an interest in buying parts of Citigroup that it found attractive. In our estimation, HSBC’s interests would lie primarily in Citi’s international operations such as its operations in Brazil, Mexico, and Korea. In terms of transaction processing, we estimate that either of the major processor banks, BNY Mellon and State Street, plus JPMorgan Chase could be interested bidders.”
In the view of Felix Salmon at portfolio.com, “No one has any particular interest in buying the other disparate elements of Citigroup, from Primerica to the credit-card operations and the investment bank, and it might be easier, quicker, and more elegant to simply spin them off to shareholders as standalone operations unburdened with much if any debt.”
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