Investment Banking Unit Could Simply 'Wither & Die'

The smart money still thinks that the US government's bailout of Citi is just likely to buy the company time so that it can formulate a plan to break itself up.

Despite CEO Vikram Pandit's wish to keep the empire largely intact, many now feel that Citi is just too big and unwieldy to effectively manage. The Wall Street Journal quotes an unnamed person 'familiar with the situation', who said: 'This is a reprieve, but it's not a complete pardon. Nobody's confused about that'.

And although the company has said that it wishes to hold on to its emerging markets businesses, with the likes of HSBC indicating that it would be interested in the event that they come up for sale, Pandit may have no option to consider selling some jewels in the event that further losses result in additional capital needs.

Thoughts are also turning to what Pandit and the Citi board will do about what's left of its investment banking division. The unit is being radically scaled-back, and will, at the very least, exit many risky business areas. It's difficult to see what kind of business will remain, however, as the unit is squeezed between a harsh economic climate, a lack of leverage and restrictive political realities. Unfortunately, given that there would be few (if any) buyers for the unit in the near future, many feel that the investment bank is likely to simply wither and die.

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