Business

CITI LOOKING AT JOINT VENTURES

Fresh from getting some financial breathing room, embattled Citigroup is scrambling to accelerate its plan to get smaller – and it’s looking for a little help from its friends to get it done.

Rather than continuing to pursue the so-far fruitless strategy of trying to sell non-core assets outright, sources familiar with the matter told The Post that the bank is now hoping to create joint ventures with third parties as a way of shedding businesses it doesn’t want.

The deals would be similar to what Citi arranged when it combined its wealth-management unit Smith Barney with Morgan Stanley’s shop, giving Morgan Stanley 51 percent control of the joint venture.

Citi is looking to strike those types of partnerships with non-core assets like CitiFinancial, CitiMortgages, Primerica, Japanese brokerage Nikko Cordial and Citi’s private-label credit card business.

The hobbled bank would give up controlling stakes and bring in third parties to help slash overhead costs and free up cash.

Sources tell The Post that although the joint venture deals aren’t imminent, they are in the works.

The moves come on the heels of Uncle Sam’s announcement last week that it was raising its stake in the wounded bank by converting a portion of $45 billion in preferred shares into common stock.

Citi shares closed down 20 percent to $1.20.

The new strategy comes as Citi so far has been unable to unload some $800 billion in assets the bank doesn’t want, and is facing pressure to pick up the pace given the weak economy.

It’s not clear how much additional cash the ventures would add to Citi’s balance sheet, but striking partnership deals would allow Citi to significantly scale back its holdings.

What’s more, the move would further bolster its balance sheet by increasing capital cushions, known as Tier-1 capital and tangible common equity (TCE) the two measures that speak to a bank’s financial health.

For example, under the terms of Citi’s Smith Barney venture, Morgan Stanley will pay Citi $2.7 billion for a controlling stake in what will be called Morgan Stanley Smith Barney.

That, in turn, enables Citi to recognize a tax gain of nearly $6 billion, adding some $6.5 billion of TCE to its balance sheet, while slashing annual operating costs by roughly $1 billion.

“People are not looking at cash flows, they are not looking at the realistic numbers that pertain to losses, they are looking at [tangible common equity],” said Richard Bove, bank analyst at Rochdale Securities. “These are cosmetic steps to adjust accounting to reflect the market’s demands.”

mark.decambre@nypost.com