Fed Push Likely Behind Citi Breakup

Citi's brokerage sale could signal regulators' plans for 'new order' in banking industry

By Rob Quinn, Newser Staff

Posted Jan 13, 2009 3:10 AM CST

(Newser) – The expected sale of Citigroup's brokerage business could be the first step in a government-instigated plan to cut the financial behemoth down to a manageable size, analysts tell Marketwatch. Citibank's CEO said only last month that the group had the right business mix, and many believe his sudden about-face is directly related to the government exerting influence through its 7.5% stake in the firm.

The sale of a controlling interest in Smith Barney to Morgan Stanley, after the earlier sale of its insurance and money management businesses, leaves the focus at Citi on consumer banking. This may signal a "new order" regulators aim to impose on the industry, separating capital markets activities from banking, an analyst explains, and regulating the non-banking businesses.

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Flags wave in the wind at the Citigroup Center in New York. (AP Photo/Craig Ruttle)

Insiders say Citigroup is considering selling its Banamex Mexican banking unit as part of a wave of downsizing. (©eliazar)

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Technically, Citi hasn't been nationalized, but it feels increasingly like there are a few additional folks
pulling the strings. - UBS analyst Glenn Schorr

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Fed Push Likely Behind Citi Breakup