Updated from 1:13 p.m. ESTCitigroup ( C - Get Report) reported its fifth straight quarter of losses on Friday, but its "clear roadmap" back to profitability left some investors wondering how -- or whether -- it will actually work. Citi on Friday outlined a plan to breakup its much-maligned financial supermarket model, after reporting a fourth-quarter loss of $8.29 billion, or $1.72 a share. Revenue declined 13% to $5.6 billion from large writedowns and losses in securities and banking. Results included $6.1 billion in net credit losses and a $6 billion net reserve build for future loan losses. The results were worse than the average analyst's expectation of a $1.31 per share loss, according to Thomson Reuters, but far better than the $10 billion loss that investors had feared. It was also slimmer than the year-ago loss of $9.83 billion, or $1.99 a share, as the economic crisis began to unfold. Citi shares closed Friday down 8.6% to $3.50. Citi CEO Vikram Pandit acknowledged that the results were "clearly disappointing," but assured investors that his "number one priority is to return this company to profitability." The breakup plan, which had surfaced in news reports earlier in the week, called for the company to split into two segments, Citicorp (the good bank) and Citi Holdings (the mostly bad bank). "Citi is basically going back to close to what it was 30 years ago when I first started in banking," says Ezra Zask, a director at the consulting firm LECG, who was a global trading manager at Mellon Bank in the late-1980s as Citi was expanding its banking operations. "It's like a 30-year experiment that didn't quite work." Shares of the New York-based firm first rallied as much as 17% to $4.48 in morning trading, before plummeting back below $4 per share in the afternoon. Citi's stock opened the week at $6.75 but lost more than 40% of its value as worries about its financial health exacerbated. Citi has suffered mightily during the economic crisis, posting huge writedowns on troubled assets and reserving billions in capital for future losses. The bank received nearly $114 billion from the government in emergency loans and capital infusions over the past few months to keep its head above water. As a result, its shares have plunged from a 52-week high near $30. Though Uncle Sam deemed Citi too big to fail, the business model of a giant, one-stop shopping center for financial services it created through a series of mergers, most prominently its 1998 tie-up with Traveler Group , seems to have reached its end. Critics have long called for a split-up and blamed management for not recognizing severe issues with subprime-housing, consumer-credit and investment decisions far earlier. Pandit vocally supported the financial supermarket model just months ago. Citicorp, the good bank, will include all assets the firm plans to retain: The retail bank; the corporate and investment bank; the private bank, which serves wealthy individuals; and global transaction services. Pandit said Citi's path forward will be paved by its large global deposit franchise, which has a strong presence in developed markets, and is attempting to gain ground in several emerging markets as well. All told, Citi has a presence in about 140 countries. "We have also come to the conclusion that our competitive advantage is our global presence, which is rich in history and relationships," Pandit said during a conference call. "We have an irreplaceable franchise and this is the heart of our company." Some $850 billion, or 45%, of Citi's whittled-down $1.9 trillion worth of assets will be allocated to Citi Holdings. The company will look to sell or spin off these troubled assets and riskier operations, including Citi's asset management and consumer finance segments, CitiMortgage and CitiFinancial, as well as a pool of about $300 billion in mortgages and other risky securities that the government agreed to backstop late last year. In theory, separating the two businesses will allow Citi to be a more manageable enterprise and lower its risk profile to avoid another catastrophe. Returning to a basic banking business will allow Citi to expand when economic conditions improve, while producing what Pandit characterized as "the desired consistent and stable earnings over time." But before that time will come, Citi must jump over several hurdles, not least of which is finding buyers or investors to support its bad-bank businesses. It also could simply write down the troubled assets into oblivion. "Who is going to be interested in buying the losers -- consumer finance, private label credit cards, etc.?" asks Robert Howell, professor of business administration at Dartmouth's Tuck School of Business. "My guess is that Citi will take huge losses on them, if they even can be sold." Another key question, notes Howell, is who will run each of the businesses, as the current CEO has relatively sparse experience in traditional banking, and board oversight has been arguably lax. Citi's lead director Richard Parsons announced on Friday that more board members are expected to depart after long-time director and former Treasury Secretary Robert Rubin recently left the firm. Rubin received harsh criticism for advocating Citi's business model and not predicting the current economic crisis. Once all those hurdles are passed, Citi will have to differentiate itself and gain an edge against fierce competition. For instance, Howell characterizes JPMorgan Chase ( JPM - Get Report) as having "far superior banking management" and Bank of America ( BAC - Get Report) as having a wider U.S. footprint and breadth of product offerings. And while Citi's global footprint is impressive, it is unclear who will lead the charge abroad, especially as the outlook for emerging markets appears grim. The bad-bank portion will also hold one of Citi's more profitable ventures -- the Smith Barney and Nikko Cordial brokerages. Citi sold a majority stake in Smith Barney to Morgan Stanley ( MS - Get Report), which will operate it in a joint venture. Citi still holds a 49% stake in Smith Barney, and while some have characterized the decision as throwing the baby out with the bathwater, Pandit asserted that they "do not really add sufficiently to our global strategy and they do add to management complexity." Still, Ladenburg Thalmann analyst Richard Bove says in a recent note to clients that "from a pure business standpoint, this deal makes no sense for Citigroup," since Smith Barney did not contribute to Citi's losses, and Citi will be contributing 60% of its profits to the new group, but getting just 49% of the earnings. Investors may remain wary of supporting a company that put a superficial barrier between the "good" and "bad" businesses. Michael Klein, a professor of international economics at The Fletcher School at Tufts University, says it's impossible to separate the two entities or price the firm until all the issues are settled. "Are you really buying yourself anything new here, or is it just cosmetic?" he says. In terms of whether supermarket business model is inherently flawed, or was just poorly managed at Citi, a consensus may never be reached. Klein asserts that if the question were posed every 2.5 years for the past decade, "you probably would have gotten different answers each time." Bank of America's money woes, due largely to its push to expand brokerage operations with its hasty acquisition of Merrill Lynch, fueled criticism of the model anew this week, even as Citi backed away from it. Others are quick to note that competitors like Wells Fargo ( WFC - Get Report), Bank of New York Mellon ( BK - Get Report) and JPMorgan, while not identical to Citi, have handled diverse set of financial operations better. "To draw any conclusions about banking from the experience of Citigroup would be mistaken," says Bove. "There is no question that one-stop shopping is the wave of the present and future in banking and that it is working well at numbers of companies... Citigroup was simply a misdirected organization." Joseph Woelful contributed to this report.
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