Citigroup's regulatory problem
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Citigroup is too big to manage — at least according to Sen. Elizabeth Warren, who wrote a pointed letter last week to Michael Hsu, the acting head of the Office of the Comptroller of the Currency, the bank's primary regulator.
Why it matters: Per a speech Hsu gave last year, banks that are too big to manage should ultimately be broken up if they fail to successfully remediate their problems.
- Warren's letter makes the case that Citigroup falls into that camp.
Where it stands: Hsu found earlier this year that Citigroup had failed to comply with a 2020 consent order seeking "remediation of its unsafe or unsound practices."
- To the contrary, says Warren, Citigroup has since then had "multiple and ongoing management failures," including the way it accidentally paid off $900 million of Revlon debt and its inability to put together an adequate "living will" describing how it could be wound down without systemic implications.
Between the lines: Citigroup is already kindasorta trying to break itself up — it announced in January 2022 that it would sell off Banamex, the Mexican bank that has long been considered one of its crown jewels.
- So far, however, Banamex remains wholly owned by Citigroup; it should be operationally separated from the rest of Citi by year-end.
- An IPO is now slated for 2025, but the date remains uncertain, along with the degree to which the Mexican bank would still be controlled by Citi even after going public.
What's next: Realistically, nothing is going to happen on the regulatory front between now and January, says TD Cowen analyst Jaret Seiberg.
- If the Democrats win the Senate in November, however, it is possible that Warren might be able to find common cause with populist Republicans like JD Vance and Josh Hawley in terms of pushing to break up the biggest banks in general — and Citigroup in particular.
The bottom line: Citigroup has been trading below book value — which is to say, at less than the accounting value of its assets — more or less continuously since the financial crisis of 2008.
- That's a sign the market agrees with Warren that the bank is too big to manage.
