Pandit: Damage control

New York, May 9 (Reuters): Citigroup Inc, the largest US bank, said on Friday it planned to shed $400 billion of assets within three years and boost revenue by up to 10 per cent annually in a bid to restore profitability after huge losses tied to flagging mortgage and credit markets.

Vikram Pandit, who became chief executive in December, announced the plans at a much awaited presentation to investors and analysts. He has faced growing demands from investors to slash costs, shed poor-performing businesses, and reinvigorate a stock price that has fallen by more than half in the last year.

“The two things I wanted to hear, which we heard, were that Citigroup is shrinking the balance sheet and getting the cost structure right,” said Anton Schutz, a portfolio manager at Mendon Capital Advisors in Rochester, New York.

“These guys weren’t defensive, they were offensive. It’s a shift.”

Citigroup lost nearly $15 billion over the last two quarters, and suffered more than $45 billion of write-downs and credit losses since last summer, as the housing slump deepened, sub-prime mortgages imploded, and credit markets tightened. More jobs will be cut, on top of 13,200 announced this year.

“It’s a net positive for Citi just to shrink,” said Henry Asher, president of Northstar Group Inc, a New York money manager.

Some investors believe Citigroup, built over nearly two decades by Sanford “Sandy” Weill into a behemoth now operating in some 106 countries, is too big. Charles Prince, who quit as chief executive in November, long rejected that accusation.

“Pandit is telling investors he is going to try to restructure,” said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

“He seems to have a different heart than Sandy Weill and Chuck Prince.”

In afternoon trading, Citigroup shares were down 30 cents to $24 on the New York Stock Exchange.

Pandit said Citigroup had about $500 billion of non-core “legacy” assets, an amount he said was not “trivial” and expected to reduce that to less than $100 billion in two to three years, largely through sales.

Unlike Weill, Pandit said he didn’t see the bank as a “financial supermarket”, but said he was committed to struggling units such as US consumer banking and credit cards.

To help market itself, Citigroup is reintroducing the "Citi never sleeps" tagline, among the best-known marketing slogans in US corporate advertising.

Pandit is targeting $15 billion of benefits from the restructuring, largely through cost cuts, with a goal of generating 18 per cent to 20 per cent return on equity.

"The asset mix is like hardware," he said. "We've got great hardware. The real question is the software."

Pandit said he planned to shed assets, including real estate, leveraged loans, complex debt tied to sub-prime mortgages, and structured investment vehicles.

Some investors said shedding assets might be an uphill struggle, given tight credit markets, and could lead to further write-downs.

"There are a lot of assets that, frankly, they can't punt, because there's no bid for them," said Mirko Mikelic, a portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.

"The problem is, how much more capital do these guys need?"

Pandit has also slashed Citigroup's dividend 41 per cent, and the bank has raised more than $42 billion of capital since the fourth quarter. "In this environment, excess capital is absolutely a strength," Pandit said.