Citigroup (NYSE:C) announced yesterday that it is selling off its Hedge Fund Business to Skybridge Capital LLC. which specializes in startup hedge funds. The business has been sitting in Citi Holdings, a recent implementation into the Citigroup structure with a number of other assets that Citigroup is trying to sell off or wind down due to the events of the recent financial crisis. Many of these assets were part of the Sanford Weil acquisition strategy which was implemented in the late 1990’s at Citigroup and bloated the company. This plan created too many limbs and different strategies which were impossible to grasp and manage over the years and did not help Charles Prince, who in all honesty was not qualified to run such a huge financial conglomerate, never mind a bank. The deal was being talked about since February but seems to be entering final stages. No actual terms were released.
This is a perfect example of what Citigroup needs to do to reposition itself and strengthen itself as a bank first and foremost again. It is also a far cry from recent testimony at banking related hearings from Charles Prince and others. The assets which the company determined as not part of the company plan have all been sitting in the Citi Holdings side of the house, awaiting buyers or liquidation. As the company continues to shed these riskier assets and moves back towards the core banking business it first started out being, investors and customers will begin to see the benefits and financial rewards of the newly re worked and streamlined entity. In effect, Citigroup is returning to its roots; not a moment too soon and a long overdue decision in my opinion. CEO Vikram Pandit and future management will have more transparency and a better stronger management team as a result.
The market seems to be welcoming this news with open arms, and for good reason. Citigroup appears determined to reverse the issues that bogged it down and nearly sent it to a similar fate as Lehman Brothers. Citigroup coming back off the mat should be viewed as a good thing, however, shareholders need to stay on top of the situation with all the different situations taking place, from raising cash through new bond offerings for general corporate purposes to new IPOs (Primerica) (NYSE:PRI) in efforts to divest itself of some under performing or non essential assets which came with the merger that occurred through Weil, knowing what is currently going on can lead to some solid profits in this equity. Primerica (PRI) is up since its initial public offering price of 15 dollars and is trading near the 26 dollar level. Alas Primerica has apparently gone full circle; and Citigroup intends to totally divest itself of Primerica moving forward. Continued cautious optimism is advised, as Citigroup continues to return closer to its roots with US Government backing and support as well as continued growth abroad with obviously improved confidence domestically among retail and institutional shareholders.
Disclosure: Currently no position in C or PRI
