Although Citigroup (NYSE: C) should have been allowed to fail, since that wasn’t allowed to happen, it is at least instructive to follow what they’re doing in attempts to survive and strengthen itself.
When measured by assets, Citigroup is the third-largest bank in the U.S., and after receiving $45 billion in taxpayers’ money from the bailout, the U.S. Government now holds an approximate 34 percent stake in the company.
Several of the latest moves by Citigroup have been to sell a part of its credit card business, a Japanese call center, and to add more commodity traders in preparation for the continuing commodity bull market when it resumes; even though a few individual commodities have been surging as of late.
At first glance you could wonder why Citigroup would unload some of its credit card business, but this isn’t the cards it issues in relationship to retailers like Home Depot (NYSE: HD) and Sears (Nadsaq: SHLD), which is an extremely large part of their business.
The three credit card businesses or portfolios they’re selling to U.S. Bancorp (NYSE: USB)are connected to smaller financial entities, and only represents a relatively small amount of $1.3 billion. The portfolios were part of their Citi Holdings unit, which they will continue to service through the first half of 2010.
Japanese Call Center
It didn’t take long for bidders to emerge once citigroup announced they were ready to sell system24Inc., a Japanese call center based in Tokyo. A number of private-equity companies have already made bids, which are expected to be as high as $1 billion.
Citigroup had planned on selling the unit for some time, but were waiting for market conditions to improve in Japan, which they have now, as the Japanese banking industry have a new infushion of cash to finance deals.
This is probably a deal Citigroup hates to have to make, as the call center had very little debt and generate significant cash flow. But this continues the deleveraging process to get leaner and continue to raise much needed capital. So far Citigroup has raised close to $9 billion in Japan through sales of its assets.
Hiring Commodity Traders
One of the major areas most U.S. financial institutions has been hiring is in relationship to commodities. While many people have forgotten we’re in the midst of a commodity bull market because of the recession, there’s no doubt that when things eventually start to improve, it will not only kick back into gear, but probably be the most profitable investment sector over the next decade, and probably even longer.
Citigroup is hiring to meet that expected surge in commodity prices, as most the other U.S. banks have been doing.
For the overall U.S. banking industry, this was one hardest pills to swallow when they had to deleverage much of their commodity portfolios to raise capital in attempts to survive, knowing that was where their future profits would come from.
The emerging huge middle classes in China and India is what will continue to spur commodities for a long period of time.
Citigroup has ramped up its commodity hires by about ten times what they had in 2005, now standing at 300 traders around the world.
