Citigroup's Biggest Success Since 2009

On Monday, Citigroup surprised analysts and investors with first-quarter earnings that handily outpaced the consensus estimate. But even better than this was news that assets in its "bad bank" had shrunk to only 6% of the company's total.

Known as Citi Holdings, the segment was created by former CEO Vikram Pandit in the depths of the financial crisis to house a collection of "non-core" assets, including toxic mortgages, ownership interest in a retail brokerage, and billions of dollars' worth of derivatives tied to the housing market.

"Citi Holdings contains businesses and assets that are not core to our strategy," Pandit explained in 2009. "Many of these businesses were built as a product strategy that relied on the existence of the shadow banking system, which has clearly shrunk in the current crisis."

When first created, Citi Holdings accounted for roughly a third of Citigroup's assets -- a sad commentary indeed on the depths of the bank's problems at the time. The remaining two-thirds were housed in Citicorp, the so-called "good bank" geared toward "helping corporate clients and consumers with their local and global needs."

Pandit's strategy was to double down on Citicorp while distancing itself from the assets and businesses contained in Citi Holdings. Most notably, in the middle of last year, Citi Holdings sold its remaining interest in the Smith Barney brokerage franchise to Morgan Stanley.

To say that Citi Holdings has been a drag on Citigroup's performance would be a dramatic understatement. In the six years from 2008 through 2013, Citicorp earned approximately $72 billion. Meanwhile, Citi Holdings lost a staggering $62 billion, leaving Citigroup with a combined net income for the period of only $10.5 billion, or less than $2 billion a year. To put that into context, Wells Fargo earned $5.9 billion in the first quarter of this year alone.

Although it's true, as a Fortune columnist pointed out Tuesday, that Citigroup's most recent quarterly performance was due in large part to Citi Holdings, there's simply no doubt that the sooner Citigroup can fully and finally distance itself from this beleaguered unit, the better it will be for shareholders.

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