Citi examines break up of German business operations

Citi in Germany, which makes most of its money from loans for everything from televisions to cars, contributed nearly 3 percent of the bank's global pretax profit in 2006. Market ructions ruined the group's earnings.

It is the centerpiece of the bank's business in Europe and any break up could signal a change in direction for the largest U.S. bank and global financial services powerhouse.

Although it is profitable, Citi's retail business in Germany -- Citibank -- has been struggling with fierce competition and falling profits and is a prime candidate for divestment.

Citibank in Germany saw its pretax profit slide 17 percent in the first six months of 2007 to 264 million euros ($418 million), continuing the sharp decline seen in recent years.

Its U.S. consumer lending business has had more serious difficulties and tumbled to a loss of more than $600 million last year compared with a profit of $1.9 billion in 2006 as the world's largest economy wobbled.

"If the price is right, Citibank (in Germany) could be sold," said one source familiar with the matter. "Everyone (in the business) is under pressure. There is an ongoing review everywhere and there are no sacred cows."

Citi declined to comment on what it called speculation.

Internally, Citi's former manager in charge of Germany and the rest of Europe had sought to play down such rumors. In March, Georg Awad wrote to its 6,800 staff in Germany to say that their local business was not on the block. Last week, however, he was replaced by William Mills, who takes charge of Western Europe including Germany.

One of the sources said that Awad's statement would not preclude a sale of the bank at a later stage. Citibank, which has handed out more than 10 billion euros of credit in Germany and has 3.2 million customers, is the country's biggest player in consumer lending with a market share of almost 7 percent.

It also has a credit card business and an arm which advises well-heeled customers on investing.

Citi's investment bank, which is far smaller than Citibank, is also active in Europe's biggest economy. This is unlikely to be sold.

There are a number of rivals which could be interested in buying the lender, one of the most aggressive competitors in consumer lending in Germany.

Spain's Santander, for example, has recently bought the consumer finance arms in Germany of Royal Bank of Scotland and General Electric.

It would offer a rare chance to grab a bigger slice of the overcrowded German banking market.

Photo: Reuters