By Jonathan Stempel and Dan Wilchins
NEW YORK (Reuters) - Citigroup Inc
After losing more than $28.5 billion in the last 15 months, including $8.29 billion in the fourth quarter, Citigroup said on Friday it plans to divide itself into one business focused on commercial and retail banking, and another to include brokerage and retail asset management, consumer finance and troubled assets.
Bank of America obtained a second capital infusion from the U.S. government, which also agreed to limit the bank's potential losses on $118 billion in troubled assets. Bank of America took on much of these assets when it bought Merrill Lynch & Co two weeks ago.
Bank of America also reported a $1.79 billion fourth-quarter loss, and slashed its quarterly dividend to a penny per share from 32 cents.
Friday's developments followed punishing declines in the shares of both lenders, which face mounting pressure over how well they will be able to absorb huge increases in soured loans as the deep recession shows few signs of easing.
Bank of America and Citigroup, the nation's largest and third-largest banks by assets, have now each accepted $45 billion from the government's taxpayer-funded $700 billion Troubled Asset Relief Program (TARP).
"Everyone out there believes that the government will not let these banks fail," said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. "I still don't know how we're going to pay for all of this."
Half of the TARP funds have been committed, and the U.S. Senate voted on Thursday to let President-elect Barack Obama to tap the rest.
The second largest U.S. bank, JPMorgan Chase & Co
In Friday morning trading, Citigroup shares rose 15 cents to $3.98, while Bank of America fell 58 cents to $7.74, both on the New York Stock Exchange. Through Thursday, both had fallen more than 80 percent from their 52-week highs set last February 1.
WEILL MODEL ABANDONED
Citigroup's quarterly loss equaled $1.72 per share, and was $2.43 per share, excluding a gain from selling a German retail bank unit. Analysts, on average, expected a loss of $1.32 per share, according to Reuters Estimates.
Under the split-up, the bank will separate into Citicorp, housing its key businesses, and Citi Holdings.
Citicorp will be home to the company's retail banking and credit card businesses, its corporate and investment bank, Citi Private Bank and a transaction services unit.
Citi Holdings would house brokerage and asset management units, including the Primerica life unit, Nikko Cordial Securities and the 49 percent stake in the new Morgan Stanley Smith Barney
Citi Holdings would also house $301 billion in assets that received government backing in a November rescue package. CitiHoldings would have about $850 billion in assets, or 44 percent of Citigroup's total $1.95 trillion.
The split-up abandons the New York-based bank's decade-old "financial supermarket" strategy once advanced by its former chief executive, Sanford "Sandy" Weill.
Vikram Pandit, the current CEO, is trying to preserve capital, while keeping what he called Citicorp's "global scope and regional strength."
Chief Financial Officer Gary Crittenden added the bank is "not in a rush to sell anything." Tight credit markets have dramatically thinned the pool of asset buyers.
MERRILL LOSS SHOCK
Bank of America's fourth-quarter loss was 48 cents per share, or 44 cents, excluding merger costs. Analysts, on average, expected a profit of 2 cents per share.
"It is difficult to focus on what is going right at this time," a downbeat Kenneth Lewis, Bank of America's CEO, said on a conference call.
Results did not include Merrill, which Bank of America said lost $15.31 billion, or $9.62 per share, in the quarter. This dwarfed the losses the bank expected when it agreed to buy Merrill on September 15, the same day Lehman Brothers Holdings Inc
Lewis said he threatened in December to invoke a contractual provision to allow Bank of America to back out of the merger, but said government officials told him that doing so could create "serious systemic harm."
He said the Federal Reserve and Treasury Department gave assurances they would provide necessary help if the $19.4 billion purchase closed, which it did on January 1.
Bank of America's own lending also suffered in the quarter, as it set aside $8.54 billion for bad loans, up from $3.31 billion a year earlier, while net charge-offs nearly tripled to $5.54 billion.
(Additional reporting by Elinor Comlay, Joseph A. Giannone, Juan Lagorio; editing by Jeffrey Benkoe)
