Citi Still Fuzzy on Unwinding Risky Assets

NEW YORK ( TheStreet) -- Citigroup ( C) Vice Chairman Edward 'Ned' Kelly didn't provide much clarity on how long it will take the troubled firm to disentangle itself from its risky assets and businesses when speaking at an industry event Wednesday.

"It's very difficult to predict the precise trajectory," Kelly said during a presentation at the Bank of America Merrill Lynch 2009 Banking and Financial Services Conference held in midtown Manhattan. "Obviously we've made substantial progress."

Citi Holdings, which was separated from the company's core Citicorp operations in January, holds a combination of brokerage, insurance, and lending businesses as well as a pool of toxic assets.

Citi has been successful at divesting some operations, such as its Japanese brokerage and asset management units, and part of its Smith Barney brokerage business through a joint venture with Morgan Stanley ( MS), as well as ancillary assets like a few retail partner credit card portfolios, but it's been rumored that finding buyers for other businesses like CitiFinancial has been tough. The company recently opted to pursue an initial public offering for its Primerica financial services and insurance unit, which is housed in the Citi Holdings portfolio.

Including the sale of Nikko Asset Management, which closed on Oct. 1, the company has reduced assets in Citi Holdings unit by $300 billion from the beginning of 2008, with $125 billion of that figure coming this year. At the end of the third quarter, Citi Holdings had assets of $617 billion. Roughly $205 billion of those assets, mostly attributable to the firm's local consumer lending operations, are backstopped by the government's loss-sharing plan.

"We want to move as quickly as possible," Kelly said. "We recognize that there is a tension between eliminating the equity market overhang, which is generated by the uncertainty around the pace of decline and whatever losses might be associated with it" ... and "doing the sensible thing economically, given the current market conditions and volumes involved because these are large businesses. The good news is we have the capital and liquidity to work through this over time."

In the meantime, Citi continues to manage and add loans in businesses like CitiFinancial, its North American consumer lending business, as well as its retail partner credit cards, in order to "optimize value," Kelly said.

One attendee asked what the company's plans were once the company was finished unwinding assets.

Kelly said Citi hopes to repay government bailout funds through the Troubled Asset Relief Program as quickly as possible, reiterating prior comments from CEO Vikram Pandit.

But beyond paying back TARP, Kelly said he saw opportunities for the company to expand and invest capital in overseas markets, particularly the emerging markets. He also pointed to the company's wholesale securities and banking, servicing business and regional consumer banking in major international markets, such as Mexico.

"In terms of opportunities, it strikes me that we're going to have many to select from," Kelly said.

Citi's off-balance sheet assets had totaled about $150 billion, Kelly said, stating the company has already taken on about $80 billion of that figure with the balance to be taken on early next year.

Citi shares edged higher Wednesday, up 2 cents to $4.20 in recent trades.

--Written by Laurie Kulikowski in New York.

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