Hedge Fund Reader : Analyst now suggest a break-up of monolith-Citigroup

October 01, 2005

Analyst now suggest a break-up of monolith-Citigroup

After similar plans to break-up Morgan Stanley to derive value wrecked by the company’s top management, the heat is now turned to Citigroup. Previously only discussed in the media, Mr. Tom Brown, a manager of New York based-hedge fund Second Curve Capital, in a commentary on his Web site mentions that Citigroup, values more in parts than as a whole. Currently he points out that trades at miniscule 11 P/E and has a M-Cap of approximately $233 billion which has been on a constant decline since the past 7 years. He estimates that Citibank, its North American operations could trade at 11 to 12 times earnings and have a market cap of $120 billion. CitiGlobal, international operations unit could trade at 15 to 16 times earnings with a m-cap of $60 billion. Smith Barney, the brokerage unit could trade at 12 times forward earnings and have a market cap of $20 billion. While the fourth unit, Salomon Brothers would trade at 2 times having an estimated market cap of $60 billion. However, it seems too good to be true on paper, and whether or not Citigroup would ever consider pull off such a mega-deal. Forbes.com Reports:

The criticism of Citi, not just from Brown, has been that it has become too large, and too sprawling, to grow and manage effectively. Punishing headlines in the last two years after major scandals in Europe Japan forced Prince to institute a company-wide ethics program, an acknowledgment of the complexity of managing a company with nearly 300,000 employees in more than 100 countries.