Citigroup's Reorganization Strategy Explained

Citigroup is reorganizing its Wealth Management Units and Mortgage Units. Let's see what we can learn about its silo busting and silo building strategies, starting with wealth management.

Reuters is reporting Citigroup reorganizes U.S. wealth management unit.

Citigroup Inc is reorganizing its U.S. wealth management unit to focus on helping clients based on their net worth, according to an internal memo dated Monday.

The largest U.S. bank will split the unit -- which includes its Smith Barney retail brokerage and its private bank -- into four segments, according to the memo from wealth management chief Sallie Krawcheck. These segments focus respectively on ultra-high net worth clients, high net worth clients, "emerging affluent" clients and institutional services, the memo said.

"Starting today, we will move from a 'silo-first' to a 'client-first' organization," Krawcheck said in the memo.

Exactly how does this eliminate silos? It seems to me that 4 silos were created out of one bigger silo. Worse yet, there is now duplication between silos. Are "high net worth" clients now second class citizens getting second class service or even second class advice? Does it take special skills to handle an "ultra-high net worth" client vs. a "high net worth" client? Does it take different skills to handle a "high net worth" client vs. an "emerging affluent" client? When someone moves up from "emerging affluent" to "high net worth" exactly what is the handoff procedure?

The best way to eliminate silos would be to sell the entire Smith Barney unit while something can be gotten for it. I said the same thing to GM about GMAC, but they pissed away time and money and still made the wrong decision to keep half of it.

Mortgage Unit Reorganized

The Street.Com is reporting Citigroup Retools Mortgage Operations.

Citigroup plans to reduce its U.S. residential mortgage assets by roughly $45 billion over the next 12 months, a 20% decrease from the end of 2007, and will cut the amount of new loans to be held in the portfolio by more than half in the next year.

In addition, Citi will combine all of its residential mortgage operations under the CitiMortgage name, including CitiMortgage, Citi Home Equity and Citi Residential Lending.

Citi will also integrate its middle office and support areas to serve first and second mortgage operations, organize its sales around customer segments and strengthen its ties with Citi Markets & Banking, which will be the primary provider of capital markets services to the U.S. mortgage business.

Bill Beckmann, president of CitiMortgage, said in a press release that the realignment "will create a simplified and streamlined organization that is more sharply focused on clients and able to direct resources to the business lines and customer segments with the highest growth potential.

Citigroup's Two Part Strategy Explained

• Big silos will be split into small silos
• Small silos will be combined into one big streamlined silo

This is an ingenious plan. Not many could have come up with it. It will be a travesty of justice if big bonuses are not handed out for this fine effort.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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