Citigroup (C) to Sell Trust Business as Part of Overhaul Plan

Citigroup Inc. C is planning to divest its trust business, a unit within its private banking operations, which manages trust and estate planning needs for its ultra-wealthy clients. The bank confirmed this to Barron’s on Aug 8. This process aligns with Citigroup’s extensive, multi-year restructuring plan under the leadership of CEO Jane Fraser.

Discussions about the deal, internally code-named “Project Mango,” began almost a year ago. Citigroup has identified a buyer for its trust business, though the identity of the buyer remains confidential. A previous bid of $70 million from another firm fell through. The agreement’s final details, including its worth, remain under wraps.

Per the agreement, the buyer will take control of the administration and fiduciary services, while Citigroup will retain ownership of the investment management functions within the trust unit. Through this strategic separation, C will enhance its focus and boost its operational efficiency within its key business segments.

Citigroup’s Transformation Strategy

Since taking over as CEO of Citigroup three years ago, Jane Fraser has undertaken a transformation of the bank.

The transformation process included an organizational restructure that replaced the existing reportable segment with five new reportable operating segments. Also, the leaders of each of Citigroup’s five main businesses will report directly to the CEO. The reorganization trimmed management layers and now operates under eight layers rather than 13. In sync with this, in January 2024, C announced its plan to eliminate 20,000 jobs as part of its broad-scale restructuring effort.

Several issues have prompted Citigroup’s overhaul efforts, including underperformance in profitability and stock market returns as compared with competitors. Furthermore, the bank has had challenges with obsolete technology, which has frustrated both personnel and customers.

As part of its strategy, Citigroup has engaged in strategic divestitures to streamline its operations. In April 2021, the bank announced its exit from the consumer banking business in 14 markets across Asia and the EMEA. Since then, the company has closed sales in 10 markets, including Australia, Bahrain, India, Malaysia, the Philippines, Taiwan, Thailand, Vietnam, Indonesia and China. Through these exits, C will free up capital and help the company pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke fee income growth.

Conclusion

As part of its complete transformation approach, C continues to improve its business structure and concentrate on key areas, as demonstrated by its progress in strategic initiatives.

These efforts have so far been marked by some wins. In the second quarter of 2024, revenues, net of interest expenses, increased 3.6% compared with the year-ago quarter. At the same time, operating expenses declined 2% year over year.

Shares of Citigroup have gained 7.6% over the past six months compared with the industry’s growth of 11%

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Currently, C carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Banks Taking Similar Steps

On Aug 5, Societe Generale Group SCGLY announced the divestitures of its private banking subsidiaries in the United Kingdom and Switzerland and the full 70% stake in its Madagascar subsidiary. These steps are expected to strengthen SCGLY’s capital position.

In July, Barclays BCS announced the divestiture of its German consumer finance business, Consumer Bank Europe, to BAWAG P.S.K., a subsidiary of BAWAG Group AG. This strategic move aligns with BCS’ plan to streamline its operations as outlined in the Investor Update on Feb 20, 2024.

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