Citigroup Inc (NYSE:C) breakup could boost shareholder value by 60%
It is emerging that a split of Citigroup Inc (NYSE:C) could unlock amazing benefits for its shareholders. Reorganization of the bank company would mean selling off the international consumer business and breaking up what remains into standalone corporate and consumer focused businesses.
According to Keefe, Bruyette & Woods (KBW), the sale of Citigroup Inc (NYSE:C)’s international consumer operation and subsequent split of the company into Citi Consumer and Citi Corporate could see shareholder value rise by 60%.
Citigroup has already started selling some of its consumer operations abroad. However, KBW notes that the company needs to be more aggressive in such transactions to unlock full value for shareholders.
Lowering operating costs
A breakup of Citigroup Inc (NYSE:C) could be beneficial in a number of ways. First, the divestment of the international consumer business would mean reduced cost burden for the company with the resulting savings finding their way back to shareholders.
Easy to understand structures
Second, a split of Citigroup will create two simple corporate organizations that are easier for investors to understand, thus attracting more investments. Additionally, the two simplified businesses resulting from the breakup of the legacy Citi will face lower capital reserve requirement as they will not be considered too important to fail. The capital relief can find its way back to the pockets of shareholders.
It also seems to KBW that breaking up Citigroup would result in more agile simple organizations that can grow rapidly in their respective domains, thus creating shareholder value faster.
Possible new structure
If Citigroup Inc (NYSE:C) is to split, the corporate business will focus more on investment banking, trading, asset servicing and treasury and trade solutions. On the other hand, the consumer business will focus more on consumer banking and cards.
Major transformation by get cold reception
As much as a breakup appears to be the most promising way to completely transform Citigroup Inc (NYSE:C), KBW notes that splitting up the company won’t be easy. For instance, executive pay is usually fat as long as the structure of the company remains large and complex. Additionally, Fed by be reluctant to encourage a breakup considering that the regulator is comfortable with banks holding large capital in their reserves.
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