Citigroup Inc. (NYSE: C) investors are looking for change and new chief executive Vikram Pandit is ready to act. The bank announced a broad restructuring move after the banking giant loss half of its market value in six months thanks to the sub-prime crisis. The new additions to the larger restructuring plan involve breaking up the consumer banking group into regional divisions and separating its credit card division.
The consumer banking business saw a 35 percent decline in profits last quarter due to consumer mortgage defaults and credit concerns. The performance of the division is important as it accounts for nearly 70 percent of Citigroup's revenues. Previously, the unit was ran by two people but now it will have five bosses as new blood is brought in to change things up.
The move to split the consumer banking business comes amid a larger restructuring that has taken Vikram Pandit across the world slashing more than 6,000 jobs. The executive also worked to reduce loans and securities on the company's books in order to shrink its balance sheet and reduce risk. This is a huge move given that the company's balance sheet is the largest in the world with over $2.2 trillion of assets.
Shareholders remain divided on whether or not the Citigroup will be able to pull itself out of this mess. Some see this new management shake-up as irrelevant. After all, changing who reports to whom makes very little difference after the fact when everyone knows where the problems lie. Others like Oppenheimer analyst Meredith Whitney are predicting steeper additional write-downs for the troubled firm.
In the end, Vikram Pandit must work to prove to shareholders that he can enforce change. He may have worked to make the organization much leaner, but it will take more than that to solve its problems. In particular, it will need to work to setup better risk control measures as well as work to reduce the amount of bad assets on its balance sheet to limit further losses. Whether or not this can be accomplished in the near term remains to be seen.
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