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Friday May 9, 10:23 PM REFILE-WRAPUP 2-Citigroup aims to sell $400 billion of assets (Refiles to correct spelling of Citigroup CEO's first name in paragraph 2) (Adds details throughout, adds analysts' comments) PHILADELPHIA, May 9 (Reuters) - Citigroup Inc , the largest U.S. bank, said on Friday it aims to shed $400 billion of assets -- nearly 20 percent of its total -- over the next two to three years to become more efficient and profitable. Citi's newly installed chief executive, Vikram Pandit, has faced demands from investors that he slash costs, shed poorly performing businesses and even split up the bank. Some investors view Citi, built over two decades by Sanford "Sandy" Weill, as too big to govern, a charge that Pandit's predecessor, Charles Prince, routinely rejected. Citi, hit hard by the subprime mortgage meltdown and ensuing turmoil, said it has about $500 billion of "legacy assets," and it expects to pare those to less than $100 billion within two to three years. Pandit said he sees three stages for Citi: getting fit, restructuring, and maximizing the company. These stages, though, will take time, he cautioned. The restructuring could improve the bank's results early, but the overall program will require patience, Pandit said. "Basically Citigroup wants to reduce costs and get back to double digit growth rates. The new management is taking their first major steps in a bid to return to profitability," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. The assets include real estate, leveraged commitments, subprime collaterized debt obligations and structured investment vehicles. Pandit said the bank will reduce these assets in an orderly fashion. "In the long run the shedding of some risk embedded in Citi's assets is good. Citigroup will be a stronger company in the end but they will have to endure some short-term pain because they are doing something the market did not expect," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Inc in Chicago. "This news took everyone by surprise this morning," Kinahan said. Although Citi has said previously it planned to shed assets to boost its capital position, the magnitude of the sales worries analysts and is likely to prompt fresh speculation of a break-up of the Wall Street giant. Since late last year, Citi has recorded more than $45 billion of write-downs and credit losses, raised more than $40 billion of new capital including $2 billion of preferred shares this week, and slashed its dividend 41 percent. Investors have in recent weeks grown increasingly hopeful that the U.S. financial sector is nearing the end of its difficulties after being slammed over the past year by the U.S. subprime mortgage market meltdown and ensuing turmoil in global financial markets. Citi also said it expects annual revenue growth of 8 percent to 10 percent, with annual net revenue growth of 10 percent from core operations. That would include increases of 7 percent from credit card operations, 8 percent from consumer banking, 9 percent from both securities and banking, and from wealth management, and 14 percent from transaction services. Pandit said he expects the company to see $15 billion in "re-engineering benefits" from the restructuring. Pandit and his team were expected on Friday to tout Citi's combination of consumer and institutional businesses. They were also expected to outline the bank's focus on cash management, wealth management and cards as key businesses for the future. Steven Freiberg, CEO of Citi's Global Cards, said the company was best positioned to grow compared with peers in credit cards. He said the company had underinvested in credit card marketing relative to peers since 2004. In the markets and banking operations, Pandit said Citi was looking at everything to determine the right strategy. He said volatility and returns have been unacceptable and those businesses needed to be restructured to reduce some costs. Some investments, however, would be needed to support growth. "You can be sure we will properly understand the risks we're taking, and if we can't get that right, nothing else I'm going to say is going to matter," Pandit said. In the markets and banking sectors, Pandit said the company would exit unprofitable clients. He said, however, no potential client should make big decision without first going to Citi. The company also said it planned to add private bankers and offices for high net worth clients around the world. (Reporting by Jonathan Stempel in New York, Doris Frankel in Chicago, and Jessica Hall in Philadelphia; Editing by Steve Orlofsky) (For more M&A news and our DealZone blog, go to http://www.reuters.com/investing/news/mergers)