Citigroup's 'supermarket' model is done

NEW YORK — The original financial supermarket is dead.

Citigroup signaled the end of a decade-long experiment to create one-stop shopping for financial services — everything from consumer loans to investment banking — with Tuesday's announcement that it was merging its Smith Barney brokerage into a joint venture with Morgan Stanley.

The deal, which will give Citigroup $2.7 billion in badly needed cash as it gives up control of Smith Barney, comes as the company still struggles in the aftermath of the mortgage and credit crisis. There is speculation that CEO Vikram Pandit, who for months supported Citigroup as a "universal bank," will be taking further steps to simplify and streamline the company.

And many people on Wall Street believe Citigroup could be headed for an even larger-scale dismantling if the federal government — which now has a stake in Citi thanks to its recent bailout — has its way.

"I think within 12 months, Citigroup no longer exists," said William Smith at Smith Asset Management, who owns Citigroup shares.

He has been calling for a breakup of Citigroup for years, and he believes the government will force that fate in piecemealpiece-meal fashion over the coming year.

Citigroup was the quintessential financial supermarket, cobbled together over decades by Sandy Weill — the former CEO who is both lauded for bringing Citigroup its biggest profits ever and criticized for creating an unsustainably massive, impossible-to-manage conglomerate.

The idea behind the supermarket is that the average person can do all his saving, borrowing and investing with one company. Citigroup had it all, the retail and business banking operations, the investment banking business, the brokerage, even Travelers insurance. Whether that one company does it better than a number of specialized companies does, though, has been the big question facing shareholders since the deregulation of the banking industry in the 1990s. And Citi's announcement Tuesday further undermines the idea that one company can handle such diverse businesses at once.

To be sure, JPMorgan Chase & Co.'s model is essentially a supermarket, too, but it does not have as large an international presence as Citigroup has had. Bank of America Corp. has many disparate businesses, too — including the recent government-brokered acquisition of Merrill Lynch, the world's largest brokerage — but it maintains a strong focus on its U.S. operations. Perhaps more importantly, analysts argue that these banking giants were managed and integrated much better over the years than Citigroup was.