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

Smith Barney has "often been touted by Citi's management as a key platform for cross selling its credit card, mortgage and investment banking products," writes John McDonald, an analyst at Sanford Bernstein.

"[W]e think this is a bad move for Citi," McDonald writes. "While the potential Smith Barney transaction could add some capital to Citi, it also does so at the longer term cost of trading away the strategic and financial benefits of owning the retail brokerage franchise, and is not a complete solution to Citi's capital issues."

Tom Hepner, an investment adviser at Ruggie Wealth Management in Tevares, Fla., says with the unloading of Smith Barney, it is possible that Citi could become a large regional player, along the likes of PNC Financial Services (PNC) and Southeastern bank BB&T (BBT) .

"We could have a completely new landscape in terms of banking," Hepner says. "It doesn't mean they can't reassert themselves downstream, [but] before the recovery is complete, they might be a second-tier institution. [The stock] is almost priced like that right now. When Citi's trading under $7, in terms of quality, what kind of acquisitions can they do for stock?"

Hepner adds that the company's refocus on traditional banking services and shoring up its balance sheet is the right strategy for Citi.

"Citi is addressing the fact that they need to survive and they will do anything to survive and that may mean selling off some good businesses," he says.

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