Analyst: Citigroup should dispose of bad bank assets


The "bad bank" concept seems to have worked at several banks.

Consider Citigroup, which created a bad bank known as Citi Holdings four years ago to serve as a container for toxic assets and other non-core units that it saw as ripe for disposal.

The Financial Times notes that, "Citi executives say the strategy worked, allowing investors to understand the core business better. An additional benefit: staff were not left looking over their shoulder, worried about which businesses were being prepared for sale – it was out in the open. Into Citi Holdings went a diverse range of assets, including CitiFinancial, a consumer finance company with 3,000 branches catering to US customers but these were distinct from the urban, international customers that the bank sees as its base. Private-label credit cards went into the 'bad bank' too but this business was later given a reprieve – the only example so far of Citi bringing a business back into the fold of its core operations. Citi's stake in Smith Barney, the retail brokerage, also went into Holdings."

The unit still holds about $100 billion in mortgage assets. Overall, assets have fallen from more than $600 billion in 2008 to $171 million last quarter.

So, what can be done about the rest of the bad bank assets?

Mike Mayo, analyst at CLSA, has argued that the bank should work to sell off more assets in the bad bank. My sense is that the bank would love to sell the majority of the bad bank's assets, but that's far easier said than done.

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