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Citigroup Fears Hedge Funds May Push for Breakup: FT

CNBC.com
Monday, 30 Apr 2007 | 1:26 PM ET

Citigroup executives are worried that hedge funds may pressure a breakup of the world’s biggest financial services company, the Financial Times reported.

The unnamed executives believe Citigroup needs to better explain to shareholders the value of keeping its businesses together, the FT said.

Citi Break-Up?
Citi executives say activist hedge funds may pressure the company to split up, with CNBC's Melissa Lee

Citigroup, which has a market value of $260 billion, has long been considered too big to break up. But when it comes to hedge funds, one Citigroup executive told the FT: "Even Citigroup is not too big. It's not impossible."

Concerns among the executives have heightened following the campaign by The Children’s Investment Fund, an activist investor group, to force the break-up of ABN Amro , the Dutch banking group. This has resulted in a battle between Barclays and a consortium of banks seeking to break it up.

Chuck Prince, Citigroup's chief executive, is under pressure to boost its stagnant share price. Critics say the group is too big and complex to manage and that smaller specialist financial companies tend to perform better.

Street Stories: Citi
Analysis of the likelihood that Citigroup will actually be broken up by activist hedge funds, with Charlie Gasparino, CNBC on-air editor

Tom Brown, chief executive of Second Curve Capital, told FT that Citi should be broken into four units: US consumer finance, international consumer finance, investment banking and wealth management.

Brown, a former banking analyst, contends that shareholder value would increase immediately if Citi were to be split into separately traded companies but what should be troubling to investors is that Prince has dismissed suggestions of a breakup.

Brown told CNBC's Melissa Lee via email that Second Curve, a fund specializing in financial stocks, he and his fund are not currently shareholders but would consider becoming one if there was chance of a breakup.

That situation appears to be unlikely at this point since an activist shareholder would probably need more than 6% of shares to gain traction, according to Jeff Harte, an analyst with Sandler O'Neill.

In the last quarter, Citi's revenue rose faster than expenses for the first time since the fourth quarter of 2005, and the bank has vowed to continue to keep costs low.

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