What options does a bank have when it has been reporting losses for five quarters in a row?

Citigroup, one of the world’s largest banks, announced last week that it will be breaking itself up by separating higher risk US consumer finance and securities businesses from its global commercial banking operations. This in an attempt to regain the trust of investors and possibly the customers.

Various high-risk assets such as brokerage and asset management will be included in Citi Holdings. Also included is a 49% share in a new joint venture with Morgan Stanley. Citigroup’s institutional and retail banks, including their global transaction services and private banking operations will be incorporated in a firm called Citicorp.

Citigroup officially announced their intended split on Friday the 16th, along with their quarter results which were even more disappointing than analysts had predicted. Citigroup reported a fourth quarter net loss of US$8.29 billion, on top of the 50 billion dollar losses made over the rest of 2008.

In November of 2008, the United States government took a US$25 billion stake in Citigroup as part of its Troubled Assets Relief Program. Now, a further US$20 billion will be directly invested in Citigroup and the US government will provide a US$306 billion backing for loans and securities.

The idea of splitting banks up in a good and a bad bank was coined before by Federal Reserve Chairman Ben Bernanke and Colony Capital Founder Thomas Barrack. It is essentially the basis of the Troubled Assets Relief Program, where the US government buys up toxic mortgage related assets. The question is, will it save Citigroup from going under? Will other major banks follow suit and will it help re-establish consumer faith?