Daniel Gross

Citi’s Garage Sale Continues with Sale of Stake in China Bank

Contrary Indicator

On Tuesday, Citi announced it sold a 2.71 percent stake in Shanghai Pudong Development Bank, raising $668 million.

Why would an American bank sell a chunk of a rapidly growing institution in one of the most rapidly growing economies in the world?

Well, for the past few years, Citi has been holding the world's largest and perhaps longest-running garage sale. Since the onset of the financial crisis, Citi, which once held the title of the nation's largest bank, has been downsizing. To make up for the hits it had to take to its capital base as a result of the bank's highly reckless extension of credit, Citi took $45 billion in capital from the government, raised new cash and then publicly committed to selling off assets and generally slimming down. Fewer loans, businesses and consumer entanglements would mean fewer opportunities to get into trouble. Never again would it be so large that it could threaten the whole financial system and the Federal Deposit Insurance Corporation fund.

The bank put lots of assets into a unit, Citi Holdings, a sort of holding pen for distressed, damaged, used and unwanted goods. (In the interest of slimming down, it even cut the number of letters in its name, rebranding itself from Citigroup to Citi.) In the first quarter of 2008, Citi Holdings's assets stood at $827 billion. Over the past few years, that total has declined sharply, as Citi sold off units, collected on loans, wrote off others, and decided to move some assets from Citi Holdings onto the main bank's balance sheet. Over the course of 2011 alone, the assets of Citi Holdings fell from $359 billion to $269 billion.

Now they are poised to drop further. Citi last year said that in the first quarter of 2012 it would transfer $45 billion of assets in its retail partner credit cards business from Citi Holdings into Citicorp.

Meanwhile, the garage sale continues. Every so often, neighbors mosey on over, look at the goods on display and walk away with something. It happens about once per month. At the end of December, Citi announced it would sell its Citibank Belgium unit, which had about $4.1 billion in assets and 500,000 customers, to Credit Mutuel Nord Europe, for an undisclosed price. (Citibank Belgium was part of the Citi Holdings material.) In February, Citi sold its 9.8 percent stake in Housing Development Finance Corporation, an Indian financial services company, raising $1.9 billion. Now comes the sale of Shanghai Development Pudong Bank share.

Of course, Citi is continuing to invest in China and India. But at a time when regulators are questioning whether Citi has the financial fortitude to withstand a global economic tsunami, the bank is having to be more selective about the investments it makes and holds on to.

Daniel Gross is economics editor at Yahoo! Finance.

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.

His next book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy, will be published in May, and is now available for pre-order.

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