Citi's Getting Smaller, But That's a Good Thing

Investor calls are also mounting that Citi should replace its chairman Sir Win Bischoff.

Shares of the company closed down 17% to $5.60 on Monday.

The company has been repositioning itself by slashing its workforce and selling businesses that were not central to the banking model, but have recently seemed open to considering more severe changes in order to raise capital.

Citi's board and management was reportedly considering various core asset sales, but had said as recently as last month that the crown jewel -- Smith Barney -- was not on the block. The rumors of a joint venture with Morgan Stanley show the company may not have much of a choice to garner capital these days.

"It would appear that Citigroup is being returned to its roots or the old Citicorp. It may be that the financial industry, itself, is being driven in this direction," writes Richard Bove, an analyst at Ladenburg Thalmann. "Whether this is long-term positive for the company or not is unclear. What these potential developments imply most is that a new order is being put in place in the American banking industry."

The company is emerging as a slimmer version with three core business lines -- consumer credit through credit cards, retail banking and consumer finance, large corporate banking and payment systems, Bove writes.

Not all observers say selling Smith Barney will be the answer to Citi's problems. Some analysts say that the bank will have to raise even more capital.