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Citi's Global Wealth Mgt Unit: Retail Clients Flee; Merrill Drags Down

Everybody knows that Citigroup announced yesterday it was putting itself out of its misery.

Everybody knows that Citigroup announced yesterday it was putting itself out of its misery. The failing bank had a whopping $8.29 billion fourth-quarter loss, capping off a horrific year. It also answered the persistent calls of critics, and announced it will be splitting itself up into two parts (Citicorp and Citi Holdings). This is the bank's fifth consecutive quarterly loss, and includes another $7.8 billion in write-downs. Net losses for the year amount to $18.72 billion, or $3.88 per share.

But what is shocking is the performance of Citi's Global Wealth Management (GWM) unit, which includes Smith Barney and Citi Private Bank. GWM net income for the quarter was an astonishingly tiny $29 million, a 94 percent decrease from the fourth quarter of last year. Full-year net income was $1.1 billion, a 45 percent decrease from full-year 2007. (On Tuesday, Citi and Morgan Stanley announced a shotgun marriage-Morgan Stanley receiving 51 percent of Smith Barney with options to buy more later; Citi holding on to the private bank. Click here for more on that venture.)

Pre-tax operating profit margin for the quarter was 2 percent and 14 percent for full-year 2008, compared to a full-year pre-tax operating profit margin of 23 percent in 2007. Due to a combination of client frustration and advisor attrition and defections, net new client asset flows were net negative $17 billion in the quarter. For the year, GWM had $26 billion in net client outflows. Financial advisor headcount was 13,765 in the quarter, down 11 percent from last year.

The same day Citi announced this news, Bank of America did one better. The bank successfully begged for another $20 billion in TARP funds (on top of the original $20 billion) and also got $120 billion in backstop guarantees related to toxic Merrill Lynch assets BofA said would otherwise sink the two firms. Bank of America CEO Ken Lewis then announced his firm posted a $1.79 billion loss this quarter; the company also announced expectations that Merrill Lynch would post a $15 billion fourth quarter loss.

For a wonderfully simple analysis of the sheer outrageousness of BofA's now government-backed Merrill Lynch purchase and continued employment of Ken Lewis as CEO, check out former Merrill Lynch analyst, Henry Blodget's take here and here on his blog, Clusterstock.

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