Citi’s Pandit pips GE’s Immelt in shrinkage race
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
NEW YORK — Corporate titans aren’t usually rewarded for shrinking their companies. But the CEOs of two of the world’s biggest companies, General Electric’s Jeffrey Immelt and Citigroup’s Vikram Pandit, have had to do something like that. Bloated balance sheets heavily reliant on short-term financing forced both to beg for government help two years ago. Since then, they’ve been shedding assets in a bid to return to normal business and create a buffer against ever needing taxpayer handouts again.
If it were a race, Citi Holdings, the bank’s unit that houses blacklisted assets, would have a sizable lead. Including the pending sale of Student Loan Corp, Citi Holdings has slashed its balance sheet by 44 percent in two years. GE Capital, in comparison, is pacing itself. The unit’s balance sheet has shrunk only 15 percent since the end of 2008. Its unwanted “red assets” are only about 24 percent smaller than a year ago, at an estimated $105 billion.
To be fair, Citi Holdings and GE Capital are two varieties of apple. Citi created its unit to clear the garbage — and noncore units like the Smith Barney brokerage — out of its still mighty global bank. Much of GE Capital, meanwhile, remains an integral unit of its industrial parent. So while it may be shedding assets like Polish mortgages, these will be partially offset by growth in lines like commercial lending and leasing which support its world-class industrial and infrastructure businesses.
Still, both made similarly critical missteps by piling into risky investments linked to the booming real estate market with short-term borrowings. Citi received the most help from Washington — capital injections, guarantees for its debt and insurance on its most toxic assets. But without government support, it’s hard to see how GE Capital could have managed through the crisis without a firesale of good assets. It borrowed nearly $12 billion over five days from a Federal Reserve facility in October 2008.
The race is still not over. GE Capital sees the finishing line in 2012, by which time it hopes to lop another $40 billion from the balance sheet. And though Immelt may be lagging Pandit, if he remains committed to shrinking he’s unlikely to hear many boos at his annual investor presentation Tuesday. Still, it may not be as much fun as the shareholder speech he chaired precisely five years ago. It was titled “Go Big.”