Citigroup Paring Back on Mortgages; Will Shed $500 Billion in Non-Core Assets

Citigroup Inc. (C: 4.06 0.00%) said Friday that it will reduce so-called non-core assets by $500 billion over the next several years as the banking and financial services giant looks to reel in its capital base and divest of riskier assets. The news comes as part of the company’s investor day, and as CEO Vikram Pandit looks to reshape the ailing giant.

A large chunk of that reduction will be set directly in mortgage banking and related businesses, according to CFO Gary Crittenden’s remarks on Friday. $100 billion of the divestiture total will come from the sale of non-core operations, while the remaining $400 billion in divestitures will come from the sale or run-off of a wide range of assets, MarketWatch reported.

Crittenden said that 50 percent of the company’s $400 billion asset reduction target would come from consumer banking, largely by either selling or allowing the run-off of portfolio mortgages and mortgage-backed bonds.

In March, Citi signaled that it would let a large portion of its mortgage portfolio run-off as it shifted its business towards mortgages saleable to Ginnie Mae, Freddie Mac, or Fannie Mae. At that time, the company said mortgage portfolio run off would likely total roughly $45 billion in 2008.

Spokesperson Mark Rodgers said then that the firm wasn’t explicitly planning to sell a portion of its loan portfolio. “If an opportunity to sell came up, however, I’m sure we’d consider it,” he said.

With roughly $200 billion — give or take a few billion — in mortgage-related assets now facing a likely sale or runoff, sources tell HW that it’s probable that Citi is now looking to sell at least a portion of its substantial mortgage portfolio.

“Anything that can be sold without taking a loss would seem to be a viable option [for sale],” said one source, who asked to be named. “Anything impaired is likely to be held to run-off … Pandit’s trying to bolster Tier 1 capital, not deplete it.”

Selling assets at a loss would reduce so-called Tier 1 capital, a key measure of solvency used by bank regulators to gauge the health of a financial institution; conversely, selling non-impaired assets — such as certain mortgages and investment-grade MBS paper — would serve to increase Tier 1 capital.

Materials presented to investors Friday suggested that the $500 billion divestiture total would include 4 percent from auto holdings, 5 percent from subprime collateralized debt obligations, 6 percent from highly leveraged commitments, 11 percent from structured investment vehicles, 35 percent from real estate and 39 percent from other, unnamed assets.

Citibank has been hit hard by the mortgage crisis, most recently reporting a first quarter loss of $5.1 billion and $13.9 billion in write-downs spanning mortgages to leveraged loans.

Disclosure: The author held no positions in C when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.