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Citigroup's 'Bad Bank' Gets Smaller, Badder

Stocks in this article: C MS JPM GE XOM HD SHLD PRI DFS

NEW YORK ( TheStreet) -- Citigroup (C) earnings are being dictated by the ever lightening Sisyphean rock called CitiHoldings -- a 2008 spinoff of "non-core" assets -- which Citi pushed off its balance sheet during the financial crisis but continues to weigh on the bank's earnings performance.

As part of its earnings announcement Monday Citigroup said that it planned to retain its retail partner cards business after it reported significant strength including a $2.2 billion pre-tax through the first three quarters.

Citigroup CEO Vikram Pandit

Citigroup CFO John Gerspach told reporters in a conference call that the decision to move the retail partner cards business back into the Citicorp portfolio from CitiHoldings had been a strategic one.

The cards business was now a better with the core strategy of the bank, both as a result of restructuring and emerging patterns in consumer behavior. Citi has spent the last couple of years reworking the business, with the average credit scores underlying the portfolio now over 700. "It is a markedly different portfolio than what it was in 2008 and 2009," Gerspach said.

Secondly, as banks have pulled back credit lines since the crisis, consumers, wishing to avoid big purchases on their regular credit cards, are using private label cards more often.

The assets include approximately $45 billion in credit loans made using Citi's balance sheet from partner retailers like Home Depot (HD), Sears (HLD) and ExxonMobil (XOM).

The other $32 billion of credit card assets from what was once CitiFinancial, now called OneMain, will remain with CitiHoldings.

CitiHoldings was invented in the fourth quarter of 2008 as a business of $850 billion in assets kept separate from its ongoing $2 trillion plus sized bank to help it build capital, become simpler and find a more predictable growth track.

Since its creation, CitiHoldings has been cut by more than half its size. In its most recent quarter Citi reported that while the size of CitiHoldings as a percentage of total assets has fallen to 15%, it's not just been from sales - the remaining Citigroup has been able to rebuild its businesses back to pre-crisis levels.

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