Transcripts

Citi Splits & Bank of America Gets a Bailout

SUSIE GHARIB: Major developments today at two of the nation's biggest banks: Citigroup and Bank of America. First, Citigroup. It's splitting itself into two separate companies: Citi-Corp and Citi Holdings. Citi-Corp will focus on its core banking operations, without the distraction of hundreds of billions of dollars in toxic assets. Those problem loans, along with Citi's other non-banking businesses will be shifted to Citi Holdings. The moves came as Citigroup reported a quarterly loss of more than $8.25 billion, twice as much as analysts had expected. Well, the news wasn't any better for rival Bank of America. It reported its first loss since 1991: $1.8 billion and slashed its dividend to a penny a share. B of A was also forced to seek more emergency funds from the Federal government. Uncle Sam is giving the bank another $20 billion on top of a previous loan of $25 billion.

PAUL KANGAS: For more than a decade, Citi has embraced the dream of a financial supermarket. That dream is now dead. Suzanne Pratt takes a look at where the nation's biggest banks, including Citi, head from here.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Citi will now have a split personality. Call it the good bank, bad bank system. The good part holds the best assets, while the bad part holds mostly the toxic ones. Citi's move raises questions about just what is the perfect model for a large U.S. bank. Banking expert Bob Albertson says there's no ideal model, only various needs in the marketplace.

ROBERT ALBERTSON, CHIEF STRATEGIST, SANDLER O'NEILL: The most important we need right now are straight clean basic banks that stay in communities and help fund local job growth and businesses. But, you also need national entities that can aggregate consumer credit and make it efficient. And, you also need some global financial entities to keep you in touch with the rest of the world.

PRATT: Curiously, while Citi has been slimming down, Bank of America continues to bulk up. Last year's ill-timed purchases of Merrill Lynch and Countrywide Financial have put further pressure on B of A. The nation's largest bank said today it expects more and possibly bigger losses in quarters ahead. But to many experts, B of A's problems are less about girth and more about management making bad choices. Still others, like T. Rowe Price portfolio manager Jeff Arricale point to JPMorgan as an example of a bank that gets it right.

JEFF ARRICALE, PORTFOLIO MGR., T. ROWE PRICE FIN. SVCS. FUND: JPMorgan's scale and scope has helped it to generate earnings through most of this cycle. Their credit card charge offs are -- they have one of the biggest credit card books in the world, yet their credit card charge offs are significantly better than that of their peers.

PRATT: When it comes to investors making money in bank stocks, some experts say forget about finding the perfect model. They say investors simply need more clarity from the government about how it will treat struggling banks in the future.

ARRICALE: The government is the largest investor in financials now and they need to determine what their playbook is as far as how they're going to recapitalize, how they're going to deal with toxic assets. They need to determine their playbook. They need to publish the playbook.

PRATT: As large U.S. banks struggle to reinvent themselves, they remain up against dismal economic conditions. Some analysts expect problem loans to peak in 2010 at the earliest. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.