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must step up and refocus its retail banking operation as it pares down its assets, businesses and risk in the wake of the government's multibillion-dollar bailout.

Citi, which has received more than $45 billion from the federal government over several rounds since October and some $300 billion more in guarantees on risky assets, is one of the few large banks that are unlikely to escape from the government's clutches at least in the near term.

While rivals like

JPMorgan Chase

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prepare to imminently pay back the government's investment made through the Troubled Asset Relief Program, Citi is unloading once-prized assets, including half of its Smith Barney brokerage to

Morgan Stanley

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But one business that Citi cannot ignore while it continues in clean-up mode is its retail bank. As the banking landscape shrinks as a result of several large regional banks being acquired and several dozen other small banks failing, Citi's retail bank becomes an even more crucial part of its business. Citi's recent build-up of a new executive team on the consumer side is evidence the bank sees the importance of retail banking going forward.

"One of the things that we learned from the whole financial crisis is the importance of traditional values and traditional banking, namely binging in core deposits, says Ken Thomas, a Miami based banking consultant and economist. The problem with Citibank is -- they focused so much on international banking that the most profitable aspects of banking -- namely domestic retail core banking -- they left to others," such as

Bank of America

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Wells Fargo

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and JPMorgan.

"These other guys were assembling these domestic retail banking empires in their own backyards as Citi was focused on China and the rest of the world," Thomas says. "

What they need to develop is a strong retail franchise in key states," like California, Florida and Texas.

Citi has a reputation for largely ignoring its retail bank, even before the financial crisis began. But over the past two years the company has focused on shoring up its balance sheet, building its capital levels and stemming the bleeding from massive risk-taking the firm did in the earlier part of the decade.

Under pressure from regulators, the company split itself into a so-called good bank, Citicorp, and a so-called bad bank, Citi Holdings, by separating its core and non-core/troubled businesses early this year.

The joint venture with Morgan Stanley, which launched this week, is evidence of the pressure Citi is under to create more tangible capital. The transaction was completed a month ahead of schedule. But of Citi's remaining core businesses, it's questionable what kind of value remains at the company.

According to recent annual rankings by J.D. Power and Associates, Citi's retail bank ranks below average for customer satisfaction in each of the six regions it operates within.

The company has more than 900 branches in 14 states, mostly in the mid-Atlantic region.

Citi's failure to complete its agreed-upon acquisition of


-- a deal trumped by retail powerhouse Wells Fargo, which prevailed after a brief legal tussle with Citi - "was the biggest mistake of

Citi CEO Vikram Pandit when he let that slide through his fingers," Thomas says.

Citi now should be throwing its hat into the acquisition fray to pick up deposits and branches, such as the recently failed Florida institution


, Thomas says. BankUnited was acquired by a private equity consortium of WL Ross & Co., Carlyle Group, and

Blackstone Group


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, among others, last month.

But a major problem to the Citi story right now is that essentially it is still in "consolidation/recovery mode vs. expansion," unlike other big competitors, Thomas says.

The U.S. government, essentially Citi's largest shareholder, has a large say these days in the strategic decisions of Citi, so any sort of expansion is likely off the table for now.

During a conference call last month to discuss the findings of the government's stress test in which the company was told to find an additional $5.5 billion in capital, Pandit said the strategy for Citicorp is clear.


We're the world's most global bank, and we have an enviable global network that is almost impossible to replicate, both in the institutional as well as consumer businesses," Pandit said. "As we focus on working down

Citi Holding's assets we'll also be sharpening our strategic and execution focus on Citicorp."

Citi declined to comment on M&A speculation. However, rather than spending capital that Citi cannot afford to lose right now on M&A or building branches, a far more efficient alternative would be internal improvements, says Michael Beird, director of banking practice at J.D. Power and Associates.

Beird says it is crucial that banks, including Citi, focus on having excellent "in-person experiences" such as customer wait time, representative contact with customers within branches, branch and ATM hours and convenience, reducing problem incidents and improving problem resolution.

"Those types of characteristics weigh heavily on customer's priorities," Beird says. "If you could focus a fraction of that money on the in-person experience and reducing problems with customers, you're going to get as much if not more lift from that area," he says.

Brand image is also a major component of overall customers' satisfaction, Beird says.

Given Citi's troubles over the past year -- which prompted speculation about whether the bank would be nationalized or fail -- its brand has been severely deflated as customers are reluctant to trust the firm.

"It's no secret brand image has played in quite a bit to Citigroup's challenges," Beird says. "They've got to give confidence back."

Pandit has been revamping executive management throughout the company. On the consumer side, Pandit last year hired Terri Dial, then the head of Lloyds TSB Group's U.K. consumer banking division and a former Wells Fargo executive, to be in charge of the company's North American consumer banking.

The company in March hired former Bank of America veteran Brad Dinsmore in March to run its retail banking operations.

Additionally Citi in April brought on former

Charles Schwab

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executive Deborah Doyle McWhinney of Citi's existing U.S. network of Citibank branch-based financial advisors and other financial planning and wealth management services, the company said.

The firm is also taking steps to improve its retail customer experience.

In the branches, the company is focusing on improving service and knowledge of its customer-interfacing employees to address problems and directing customers appropriately, according to a source familiar with the company.

The firm is also centralizing its identity theft and fraud operations. Citi is also involved in a long-term initiative to upgrade its automatic teller machines, they say.

Citi also has specific programs underway in its credit card and mortgage businesses to consolidate debt and undergo modifications for customers having trouble paying their bills.

The company said in a statement that it was disappointed in the J.D. Power and Associates customer satisfaction rankings but "congratulate

s our retail branches for the improved ratings related to the in-branch experience, such as friendliness of staff, wait time, knowledge, and transaction speed."

"Now, we must drive significant improvement in our product offerings and our ease of banking," it added.