Analysts: Citigroup likely will get smaller

NEW YORK - The incredible shrinking bank may have to shrink more.

In the hours after Tuesday's surprise announcement that Citigroup chief executive officer Vikram Pandit was stepping down, speculation was rife but facts scant about what lay ahead for the nation's third-largest bank.

Pandit left after a series of embarrassments and missteps that apparently unsettled Citigroup's board, including a "no" vote from shareholders on his pay package and a ruling from the Federal Reserve that the bank was not strong enough to raise its stock dividend.

Under Pandit's successor, one possibility financial analysts give good odds is a strategy of more cost-cutting, shrinking, and focus on traditional banking, such as loans.

"It's going to get a lot smaller," said Gerard Cassidy, a longtime banking analyst at RBC Capital Markets. "You've got to shrink to make big money."

In the nearly five years since Pandit took over as CEO, he shed businesses and cut jobs. Staff fell from 375,000 when he took over to 262,000.

Once the nation's largest bank, Citi is now the third-largest, with $1.9 trillion in assets. It trails JPMorgan Chase, with $2.3 trillion, and Bank of America, with $2.1 trillion.

Citi's new CEO is Michael Corbat, 52. He had been CEO of Citigroup's Europe, Middle East, and Africa division. He also ran Citi Holdings, which contains assets that Citi wants to sell.

Because Corbat is not widely known, it's unclear how he might change the direction of the company.

For clues, some analysts are looking to someone better known: the man thought to be behind Pandit's departure, chairman Michael O'Neill, who took over in March, when Richard Parsons left after three years.

O'Neill was elected CEO of the British bank Barclays in 1999 but had to give up the job immediately because of heart problems. He joined Citi's board in March 2009. O'Neill had also been CEO of Bank of Hawaii Corp., where he was a big cost-cutter.

"When he ran Bank of Hawaii, he shut down up to 50 percent of its branches. It's a startling number," Cassidy said. He added that at Citi, "if the branch banking business doesn't make sense in parts of the United States, [he'll] get rid of it."

For years, the goal in banking was to get bigger, spreading expenses over more customers and offering a smorgasbord of services. That was the vision of Sandy Weill, the Citi CEO who built the bank through several deals.

The appeal of the one-stop shop, though not dead, has lost its luster since the financial crisis. Many banks, Citi included, were so sprawling they didn't even know the risks they had assumed.