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Since the financial crisis Citigroup has managed to firm up its balance sheet and fence off most of the toxic assets that brought the bank to its knees. Some shareholders want the firm to go further though, and the latest call for a breakup comes from an unlikely source.
Boston-based Trillium Asset Management, which has about $1 billion under management, announced Wednesday that it has filed a shareholder proposal asking Citi to consider separating one or more of its business units.
Trillium filed its proposal on behalf of a client, the Benedictine Sisters of Mount St. Scholastica, and is being joined in its push by another Citi holder, the AFSCME Employees Pension Plan.
Trillium CEO Matthew Patsky says that despite steps taken since 2008, "Citigroup’s progress toward simplifying and de-risking its business has been slow and incomplete." The bank's attractive qualities are being lost in the shuffle due to "excessive complexity, as well as the stigma and risks associated with being named a ‘too big to fail’ institution."
Those issues, Patsky argues, "could threaten stockholder return through breakdowns in risk management, increased regulatory scrutiny, higher litigation expense, greater capital requirements and poor public perception, among other challenges."
"There is a gap of almost $50 billion between what Citi says its assets are worth and what the market is saying,” says the chairman of the pension plan's board of trustees Lee Saunders. "It is high time that the board gave shareholders a plan for recovering this value."
By arguing that the market is not giving Citi full credit for its assets, Patsky and Saunders have a point, but it's a plight the bank shares with most of its peers. Citi's price-to-book value ratio is 0.57; JPMorgan Chase's is 0.80, while Bank of America merits just 0.46. Wells Fargo, which does not have as much exposure to international or trading businesses, is the only one of the four biggest U.S. banks by assets to trade at more than book value, 1.18 times.
There is reason to believe that Citigroup will at least be open to considering different ways of running itself in the years to come. Chairman Michael O'Neill has a history of turning around banking operations and exerted his influence earlier this fall when the firm replaced Chief Executive Vikram Pandit with Michael Corbat.
Corbat previously was in charge of winding down the Citi Holdings portfolio, among other positions, so he certainly has experience in divesting businesses. He came assumed the top job Oct. 16, right as the bank began heavy work on planning for 2013 and beyond, and ahead of the preparations for the Federal Reserve's stress test, or CCAR, which will determine the bank's capacity to deploy capital to shareholders next year. The Fed, which rejected Citi's bid to up its dividend in 2012, is set to publish the guidelines for the 2013 CCAR Thursday.
Jonas Kron, Trillium's director of shareholder advocacy, said the asset manager made its proposal now to get it on the agenda for the April 2013 shareholder meeting, while acknowledging that Corbat and O'Neill could render the suggestion moot in the interim by taking some type of action. In fact, Kron expects management and the board are in touch with large shareholders to to take their temperature on the bank's direction, but Trillium, which owns slightly more than 182,000 shares for a stake worth about $6.6 million, believes its proposal "will allow all shareholders to weigh in."
"Our feeling was that over the course of the summer, the level of discourse on how the company is structured became more serious and public," Kron tells Forbes, referring to public comments like those from former Citi chief Sandy Weill, the father of the financial supermarket model who said this summer that the big banks should be broken up. (See "Weill's Breakup Call: Years Late And Billions Short.")
Citi declined to comment specifically on the Trillium proposal, but a spokesman notes that Citi has sold more than 60 business and cut Citi Holdings' assets by upwards of $600 billion since the start of the credit crisis. "Our capital levels are among the highest in the industry and we expect to continue to build capital by generating earnings in our core banking businesses and by continuing to reduce non-core assets," he added.
Shares of Citi were down 0.5% at $35.97 Wednesday. The stock is up more than 35% year-to-date, but still more than 90% below its pre-crisis levels.
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