--Shareholder proposal demands Citi's board appoint a committee to explore breakup
--Shareholders: Citi's progress toward simplifying and derisking "has been slow"
--Citi's shares "consistently traded below book value since late 2008"
(Adds comments from Trillium, and background throughout.)
By Matthias Rieker and Saabira Chaudhuri
Citigroup Inc. (C) shareholders formally added their voice to the growing debate about the bank's size and structure.
Trillium Asset Management LLC, on behalf of the Benedictine Sisters of Mount St. Scholastica and the Afscme Employees Pension Plan, submitted a shareholder proposal that asks the board to consider a breakup of Citi.
While the Benedictine Sisters and Afscme own $9 million worth of Citi stock--a fraction of the bank's $106 billion in market capitalization--their proposal is believed to be the first demanding the bank's directors examine a breakup.
The proposal, which the shareholders hope will come to a vote at Citi's annual meeting next year, comes after former Chairman and Chief Executive Sanford "Sandy" Weill, who was instrumental in creating Citigroup in its current form, said in July that big banks, including Citi, should be dismantled.
John Reed, who ran Citicorp before it was merged with Travelers Group Inc. in 1998 and who initially ran Citigroup as Mr. Weill's co-CEO; Richard Parsons, who resigned as Citi chairman earlier this year; Philip Purcell, former chairman and chief executive of Morgan Stanley (>> Morgan Stanley); and Sheila Bair, former head of the Federal Deposit Insurance Corp., have all voiced concerns about the size of Citi and other big banks.
Wednesday's proposal doesn't detail how Citi should be broken up, but the shareholders say it is clear Citi's own efforts to shrink haven't yielded enough value for shareholders. Citi's shares have "consistently traded below book value since late 2008," the proposal states. The shares currently trade at 57% of book value, the total value of its assets. Wells Fargo & Co. (>> Wells Fargo & Company) is trading at 108% of its book value, J.P. Morgan Chase & Co. (>> JPMorgan Chase & Co.) at 79% and Bank of America Corp. (>> Bank of America Corp) at 46%, according to FactSet Research.
"There is a gap of almost $50 billion between what Citi says its assets are worth and what the market is saying," said Lee Saunders, chairman of the Afscme Employees Pension Plan's board of trustees in a press release. "It is high time that the board gave shareholders a plan for recovering this value."
The Benedictine Sisters and Afscme propose that Citi's board appoint a committee of independent directors to explore deals including "the separation of one or more of Citigroup's businesses." Any such transaction would require shareholder approval, the proposal said.
The proposal asks that the committee publicly report its analysis to stockholders no later than 120 days after Citi's annual meeting. The bank typically holds its annual meeting in April.
Jonas Kron, Trillium's director of shareholder advocacy, said, "We are not pushing any particular plan." However, "the company has demonstrated that between its size and complexity there is an enormous amount of risk."
"We did want to make sure that all shareholders have an opportunity to weigh in on this question," Mr. Kron said. "We want this discussion to happen."
Questions about Citi's complexity and size have dogged the bank for years and intensified after Citi's near collapse during the height of the financial crisis in late 2008. Since then, Citi has shrunk considerably: It is now the nation's third-largest bank by assets. Before the financial crisis, it was the largest, and a decade ago, it briefly had been the largest bank in the world.
Nevertheless, Citi has resisted calls to sever its large and complex capital markets business from its commercial banking business.
"Citi has sold more than 60 businesses and reduced assets in Citi Holdings by more than $600 billion since the credit crisis began," a Citi spokeswoman said. "Our capital levels are among the highest in the industry, and we expect to continue to build capital by generating earnings in our core banking businesses and by continuing to reduce noncore assets."
The spokeswoman declined to discuss how Citi plans to respond to the proposal. The company could try to prevent it from being included in the proxy for its annual meeting, or it could engage the shareholders in a discussion ahead of the proxy.
Vikram Pandit, who became Citi's CEO in 2007 during the onset of the financial crisis, had set Citi on a course that combines commercial banking and capital markets business around the world. After Mr. Pandit abruptly resigned last month, his successor, Michael Corbat, told investors that the management change doesn't "reflect any desire to alter the strategic direction of Citi, which we believe to be the right one."
Mr. Pandit's resignation came one day after Citi reported a $3.27 billion third-quarter profit, exceeding Wall Street expectations as revenue in its main businesses continued to improve.
The shareholder proposal states, "Despite some positive steps taken since the start of the financial crisis, we believe Citigroup's progress toward simplifying and de-risking its business has been slow and incomplete."
The shareholders also cited the bank's failure of the Federal Reserve's Comprehensive Capital Analysis and Review stress tests in March, after which regulators continued to bar it from returning significant capital to stockholders.
Shares of Citi fell 0.76% on Wednesday, to $35.87. The stock is up 36.22% so far this year.
Write to Matthias Rieker at [email protected]
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