Citigroup Said to Consider Plan to Split in Two

Staggered by losses despite two federal rescues, Citigroup is accelerating moves to dismantle parts of its troubled financial empire in an effort to placate regulators and its anxious investors.

Mark Lennihan / AP

Under pressure from Washington and Wall Street, the financial giant plans to split itself in two, people with knowledge of the plan said on Tuesday, heralding the end of the landmark merger that created the bank a decade ago.

Citigroup, which originally planned to sell in coming years the businesses it no longer deemed central, is speeding up the process to mitigate potentially billions of new losses as the economy worsens, these people said. The government, which has twice supplied it with taxpayer support during the financial crisis, wants to avoid a repeat, said another person with knowledge of the situation.

But some Wall Street analysts and investors questioned whether the plan, which included the announcement on Tuesday that it would split off its prized Smith Barney brokerage, goes far enough to address Citigroup’s immediate troubles.

“They have moved the chips around, but it’s the same game,” said Meredith A. Whitney, an Oppenheimer banking analyst who has been critical of the company. “They still have the same capital needs.”

Citigroup faces a devastating fourth quarter, with expectations of a $10 billion operating loss, and potentially billions more this year. Federal regulators have been pressing Citigroup to clarify its strategy, shore up its finances and shake up its board, according to two people briefed on the situation. Government officials want the bank to close what they see as a credibility gap with investors.

The bank’s plan to accelerate a dismantling of its financial supermarket comes after a stern regulatory warning it received in late November, when its rapidly deteriorating share price prompted the government to give it a second cash infusion, of $27 billion.

That warning, according to one of the people briefed on the discussions, was delivered by Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, who told Citigroup that any further requests for cash would result in a breakup of its operations dictated by regulators.

A spokesman for Ms. Bair said that the F.D.I.C. did not as a matter of course discuss confidential supervisory matters.

But by devising the breakup plan, Citigroup appears to be acknowledging the regulatory admonition, though on its own terms. The moves may also set the stage for a spinoff of a stronger company or eventual merger. A spokeswoman for Citigroup declined to comment.

Citigroup’s first cash infusion from the government came in October in a $25 billion capital injection from the Troubled Asset Relief Program, or TARP. Eight other banks also received capital infusions to stabilize them as the global financial crisis deepened.

With its receipt of a second lifeline from the government in November, Citigroup began operating under what is known as open-bank assistance, which involves a loss-sharing arrangement devised by the F.D.I.C. and an investment by the Treasury typically reserved for deeply troubled institutions. Some analysts say they believe the arrangement could result in the bank selling more divisions.

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