January 24, 2008

Citi Prunes Its Branch Expansion - WSJ.com

Citi Prunes Its Branch Expansion - WSJ.com

The News: Citigroup will end a push to open more branches, concluding that the strategy has done little to increase the company's stature amid entrenched competition.

I think this is a sound strategy by Citi: focus on your strength rather than weakness as the cost to improve your strengths is very marginal compared to the cost to improve or neutralize your weaknesses. Coincidentally this action bodes well to the likes of BofA and USB as they will face less competition for market share.

Citi has one of the smallest number of retail branches in the US with just 1100 compared to over 6000 for BofA. Clearly fighting BofA or JP Morgan is a losing battle for Citi and its shareholders. Citi holds no competitive advantage or economies of scale to leverage in its fight for market share. The most logical conclusion is an orderly retreat and redeployment of cash to an area where Citi is much more competitive.

So far Citi has been doing all the right strategic moves: reshape of losing strategy, cut dividends, lay offs and cost cutting and new capital infusion. Citi is looking more attractive as a turn around story.

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