MercoPress. South Atlantic News Agency

Citigroup to split and more fresh aid for Bank of America

The struggling US banking giant Citigroup has announced plans to split the firm in two, as it reported a quarterly loss of 8.29 billion US dollars. It said it would realign into two new firms, Citicorp and Citi Holdings.

Citicorp will handle the company's traditional banking work, while Citi Holdings will take on the firm's riskiest investment assets. Last autumn, Citigroup had to be rescued by the US government in a bail-out deal totalling 45 billion US dollars. The government also agreed to guarantee up to 306 billion of risky loans and securities on Citigroup's books. "Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses," said Citigroup chief executive Vikram Pandit. "This will help in our ongoing efforts to reduce our balance sheet and simplify our organisation; we are setting out a clear roadmap to restore profitability." Citigroup's net loss for the last three months of 2008 works out at $1.72 per share, worse than analyst expectations of $1.31. Its quarterly revenues were down 13% to 5.6 billion, which Citigroup said reflected Analysts say the split essentially puts Citigroup's solid and profitable consumer banking interests in the hands of the new Citicorp, while the bad investment debts that forced it to seek government help go into Citi Holdings. This will enable Citicorp to return to profitability much quicker than would have been possible for Citigroup as a single firm. Meanwhile, the bosses at Citi Holdings will have the arduous task of sorting through the mass of bad debt, picking out what can be salvaged. Citigroup said it was now looking for a "strong manager" to head Citi Holdings. For 2008 as a whole, the bank made a net loss of 18.72 billion. It blamed the losses on having to write-off bad debt and the cost of making redundancies. The firm cut 52,000 jobs last year as its losses mounted against the backdrop of the sharp downturn in the US mortgage market and the resulting global credit crunch. "We are committed to helping the financial markets recover as quickly as possible," added Mr Pandit. The firm added that it also expected further departures from its board of directors. It was announced last week that director Robert Rubin, a former US Treasury Secretary is to leave the firm. Citigroup's announcement comes after news that rival Bank of America is to receive 20 billion in fresh US government aid and 118 billion worth of guarantees against bad assets. The emergency funding will help the troubled bank - the US's largest - absorb the losses it incurred when it bought Merrill Lynch. Bank of America has already received 25 billion in capital injections from the Troubled Assets Relief Programme, known as Tarp, the bail-out fund designed to rescue banks reeling from the financial crisis. In another development, the Irish government has said it is to nationalise the Anglo Irish Bank after its funding problems continued.