CITIGROUP IS to break itself up by separating a large portion of its troubled investment bank and higher-risk US consumer finance businesses from its global commercial banking operations in a dramatic attempt to ensure its survival.

The move would essentially dismantle the 1998 merger between John Reed’s Citicorp and Sandy Weill’s Travelers that created Citigroup. The new-look Citi would be similar to the old-style Citicorp: a global commercial and retail bank.

The new structure would no longer include some of the risky investment banking and consumer finance businesses, including subprime mortgages, that were part of the old Travelers.

People close to the situation said Vikram Pandit, the chief executive, had reversed his previous backing for Citi’s financial supermarket structure. Bankers said that the unwanted parts could be eventually spun off into a wholly separate entity but, until then, it was likely to operate as an arms-length unit of Citi, in an attempt to isolate badly performing businesses and assets.

It would also limit its reach in the US, where Citi never had the extensive branch network of rivals such as Bank of America and JPMorgan Chase.

Citi has been under pressure from the US government to raise capital and streamline its diverse portfolio after being rescued with a $300 billion (€227.6 billion) bailout by the authorities in November.

The decision by Citi, which has suffered $50 billion in credit-related losses and is expected to report another large loss next week in its fourth-quarter results, will have repercussions for the global financial industry.

US rivals such as JPMorgan, Bank of America and Wells Fargo could take advantage of Citi’s exit from consumer finance businesses, while banks like Goldman Sachs and Morgan Stanley could benefit from its move away from many investment banking operations.

People close to the situation said details of the radical restructuring were still being worked on and an announcement could come in the next few days.

They said a draft plan included placing Citi’s troubled mortgage-related assets, its specialist US consumer finance businesses CitiFinancial and the insurance broker Primerica into the bad bank.

Other parts of the investment bank, the former Salomon Brothers, could be included in the non-core unit. The core businesses are likely to include Citi’s commercial operations around the world, as well as its profitable transaction services business and the private bank. – (Financial Times service)