Recently SMFG, Japan's third largest bank by assets, agreed to buy retail brokerage Nikko Cordial Securities and some operations of wholesale investment bank Nikko Citigroup. This brings an end to the most of Citigroup's Tokyo brokerage operations effective October 1.
By selling Nikko and raising around $7.7 billion in cash Citigroup might be able to survive the current financial crises. However the question persists whether it is sufficient in the overall scheme of things. The Tokyo brokerage unit was one of the biggest sources of revenues for Citi along with its Card and Mortgage divisions.
Citi also made a lot of money in commercial real estate vertical. So which of these would survive for potential future growth of Citigroup? With the sale of Nikko, revenues from Citi brokerage divisions would be severely hit. Citigroup card division like all Card divisions in US is facing massive problems. The unemployment is at all time high at 8.9%. Government has put strong regulations on fees and most credit card practices which helped Citigroup generate highly profitable assets in past. Although mortgage industry has started to pick back up, it would never be same again without those complex mortgage backed securities and alt A loans. They were the cause of the current recession but they also brought a lot of revenues for C from 2001- 2009.
The last division in C, just like most other banks, is commercial real estate. As you all know with consumer confidence all time low, the demand in retail sector have fallen off the roof. This has also meant no new malls as well as no new loan originations for commercial real estate and an increase in nonperforming assets for this sector also.
The moral of the story is although C might survive the recession it probably would not be able to generate anywhere close to the revenues it used to in past.
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