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Citigroup Asset Sale Plan Gets a Lift

Citigroup can drive a harder bargain on its planned disposition of assorted hedge fund and private equity businesses now that support for the 'Volcker rule' appears to be losing steam.
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may get a better price on its planned disposition of assorted hedge fund and private equity businesses now that support for the so-called 'Volcker rule' appears to be losing steam.

Citigroup is said to be nearing a deal to sell about $4 billion worth of hedge fund assets, according to a report in

The Wall Street Journal

on Wednesday. The buyer is

SkyBridge Capital

, a New York investment firm run by two former

Goldman Sachs

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executives. Also on the block,

according to a Feb. 1 Bloomberg report

, is Citi Private Equity, a $10 billion business.

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The sales are a small part of Citigroup's efforts to unload the remaining $547 billion worth of assets known as Citi Holdings. The unit shrunk by $115 billion in 2009, following the divestiture of some 15 different businesses, including a 51% stake in Smith Barney it sold to

Morgan Stanley

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. The remaining 49% continues to reside in Citi Holdings.

Other Citi Holdings businesses Citigroup has sold include Nikko Cordial Securities and Nikko Asset Management, for which it got $8.7 billion and $844 million, respectively. For a detailed look at Citigroup's Citi Holdings strategy, check out

this analysis


's Laurie Kulikowski.

With regard to the private equity and hedge fund businesses Citigroup is looking to unload, however, the bank can make a legitimate case that it is not a forced seller. The Volcker Rule, a loosely defined proposal by President Obama aimed at eliminating excessive risk-taking by banks now seems stopped in its tracks.

The clearest sign the Volcker rule has lost momentum comes from Senate Banking Chairman Chris Dodd, who voiced significant opposition to the plan earlier this month. On Thursday, Fed Chairman Ben Bernanke also expressed skepticism about the rule, telling the Senate Banking Committee he fears it could have "unintended consequences," according to

The New York Times


Also skeptical that the reforms will come to much is Tony James, the number two executive at

The Blackstone Group

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, one of the world's largest private equity firms.

Asked by

about the Volcker Rule and other sweeping proposals aimed at investment banking, hedge fund and private equity businesses during a conference call with reporters Thursday, James said he does not believe major reforms are in the offing.

"I don't think there will be dramatic changes to the financial services industry the way things are playing out. I think it will be much more similar than it will be different, notwithstanding all the potential changes that are being discussed," he said.

Assuming he's right, it is of course good news for all the largest banks, including

Goldman Sachs

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Bank of America

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JPMorgan Chase

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, Morgan Stanley, and probably even

Wells Fargo

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, which is generally perceived as doing far less speculating than the others.

For Citigroup, though, which is widely known to be selling off lots of businesses, it should make the job much easier.

The last time it was essentially forced by regulators to

sell an energy trading hedge fund unit

, known as Phibro, for political reasons, it got a price so low that Steve Chazen, the President and CFO of buyer

Occidential Petroleum

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, gloated about it later in an interview with

The Wall Street Journal


"If you've got to sell why should I pay a premium? What leverage does the seller have?" Chazen told the newspaper.

Citigroup had little if any leverage at that time, but as the push for Volcker rule fades, it looks to be getting some back.


Written by Dan Freed in New York