Can Citigroup regain its lost luster?

Citigroup announced that they would be laying off 53,000 workers yesterday.  Citigroup has already laid off 23,000 employees earlier this year. Citi has lost 20 billion dollars over the past year and has had four straight quarterly earning losses. Citigroup is on its third CEO in the last year. Citigroup has watched its stock price decline to $8.00 per share and its market cap has shrank to 43 billion. Citigroup is also facing mounting losses from its mortgage, credit card portfolio and will likely need to raise additional capital. Citigroup is trying to return to profitability by selling off assets and implementing a number of cost cutting initiatives. This strategy will help Citigroup in the near term. But it does not solve the long term issues that plague Citigroup.

Beginning with the ill fated acquisition of the Travelers Group, Citigroup has struggled since the late 90′s to find its niche in the banking industry. Citigroup grew to prominence by making large acquisitions and through aggressive cost cutting. These tactics allowed Citigroup to flourish in the 90′s. The problem with relying on these methods to fuel growth is that eventually you run out of major acquisitions to make and costs can only be reduced for so long. This is the problem for Citigroup. They don’t seem to be exactly sure what kind of business they are. They have been trying to redefine their business model for the past 10 years. Is Citigroup’s main business consumer banking, investment banking, insurance or as a credit card issuer? Is Citi more focused on international growth or increasing their domestic presence in US banking?  Can Citigroup be a smaller player and still survive among the banking giants?

Citigroup is now trying to find its place in the new financial landscape. Citigroup faces a much more challenging environment with Bank of America, JP Morgan, Wells Fargo and US Bancorp all aiming to become larger players in the diversified financial services industry. The failed merger with Wachovia would have helped Citigroup by significantly increasing their number of branches in the US. It would have also given them a foothold in the southeast region of the US. However, it would not have addressed the larger problem at Citigroup of no organic growth.  Citigroup’s main focus should be on increasing profitability through organic growth and not acquisitions. Citigroup needs to maximize the earnings in the businesses that they already own.

Citigroup currently pays a dividend of 64 cents per share which amounts to a 6.7% yield. The dividend does not appear sustainable based upon the company’s weak balance sheet and deteriorating loan portfolio. Will Citigroup survive? Definitely. Citigroup is a company that has been deemed too big to fail. The Federal Government’s 25 billion dollar cash injection makes that a certainty. Citigroup will survive but the days of Citigroup as a thriving company in the financial services industry may be a distant memory.