The Back Alley Archives

Citigroup is moving to dismantle large parts of its troubled financial empire, undoing the landmark merger that created the company a decade ago, with a radical plan to split itself in two.

Under extreme pressure from regulators and confronting gaping losses, Citigroup plans to sever various corporate and investment banking businesses from worrisome consumer finance operations and other businesses that it no longer considers central, a person with knowledge of the plan said Tuesday.

The move would bring an ignominious end to the financial supermarket that has defined Citigroup since its inception in 1998, when the company’s architect and former chief executive, Sanford I. Weill, orchestrated a deal that rewrote the rules of American finance by bringing traditional banking, insurance and Wall Street businesses like stock underwriting under one roof.

Once the nation’s largest and most valuable financial company, Citigroup has withered to a fraction of its former size and power as its stock price plunged and its losses escalated. Its losses have compelled the company to grab not one but two financial lifelines from Washington, and regulators are pressing Citigroup to shake up its board.

As part of the restructuring, Citigroup will essentially spin off Smith Barney, its brokerage business, into a joint venture with Morgan Stanley, in a deal that is may be announced as early as today. The other moves are expected to be announced shortly.