Citigroup Inc. has the world's
largest financial services network
Citigroup Inc. (branded Citi), is a major American financial services company based in New York, NY. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group on April 7, 1998.
Citigroup Inc. has the world's largest financial services network, spanning 140 countries with approximately 16,000 offices worldwide. The company employs approximately 300,000 staff around the world, and holds over 200 million customer accounts in more than 140 countries. It is a primary dealer in US Treasury securities.
Citigroup suffered huge losses during the global financial crisis of 2008 and was rescued in November 2008 in a massive bailout by the U.S. government. Its largest shareholders include funds from the Middle East and Singapore. On February 27, 2009, Citigroup announced that the United States government would take a 36% equity stake in the company by converting $25 billion in emergency aid into common shares; the stake was reduced to 27% after Citigroup sold $21 billion of common shares and equity in the largest single share sale in US history , surpassing Bank of America's $19 billion share sale one month prior.
Stockton Citibank Branch - 5605 N Pershing Ave Stockton, CA 95207
Citigroup is one of the Big Four banks in the United States, along with
Bank of America, JP Morgan Chase and
Citigroup was formed on October 8, 1998, following the $140 billion merger of Citicorp and Travelers Group to create the world's largest financial services organization. The history of the company is, thus, divided into the workings of several firms that over time amalgamated into Citicorp, a multinational banking corporation operating in more than 100 countries; or Travelers Group, whose businesses covered credit services, consumer finance, brokerage, and insurance. As such, the company history dates back to the founding of: the City Bank of New York (later Citibank) in 1812; Bank Handlowy in 1870; Smith Barney in 1873, Banamex in 1884; Salomon Brothers in 1910.
The history begins with the City Bank of New York, which was chartered by New York State on June 16, 1812, with $2 million of capital. Serving a group of New York merchants, the bank opened for business on September 14 of that year, and Samuel Osgood was elected as the first President of the company. The company's name was changed to The National City Bank of New York in 1865 after it joined the new U.S. national banking system, and it became the largest American bank by 1895. It became the first contributor to the Federal Reserve Bank of New York in 1913, and the following year it inaugurated the first overseas branch of a U.S. bank in Buenos Aires, although the bank had, since the mid-nineteenth century, been active in plantation economies, such as the Cuban sugar industry. The 1918 purchase of U.S. overseas bank International Banking Corporation helped it become the first American bank to surpass $1 billion in assets, and it became the largest commercial bank in the world in 1929. As it grew, the bank became a leading innovator in financial services, becoming the first major U.S. bank to offer compound interest on savings (1921); unsecured personal loans (1928); customer checking accounts (1936) and the negotiable certificate of deposit (1961).
The bank changed its name to The First National City Bank of New York in 1955, which was shortened in 1962 to First National City Bank on the 150th anniversary of the company's foundation. The company organically entered the leasing and credit card sectors, and its introduction of USD certificates of deposit in London marked the first new negotiable instrument in market since 1888. Later to become MasterCard, the bank introduced its First National City Charge Service credit card - popularly known as the "Everything card" - in 1967.
In 1976, under the leadership of CEO Walter B. Wriston, First National City Bank (and its holding company First National City Corporation) was renamed as Citibank, N.A. (and Citicorp, respectively). Shortly afterward, the bank launched the Citicard, which pioneered the use of 24-hour ATMs. As the bank's expansion continued, the Narre Warren-Caroline Springs credit card company was purchased in 1981. John S. Reed was elected CEO in 1984, and Citi became a founding member of the CHAPS clearing house in London. Under his leadership, the next 14 years would see Citibank become the largest bank in the United States, the largest issuer of credit cards and charge cards in the world, and expand its global reach to over 90 countries.
Travelers Group, at the time of merger, was a diverse group of financial concerns that had been brought together under CEO Sandy Weill. Its roots came from Commercial Credit, a subsidiary of Control Data Corporation that was taken private by Weill in November 1986 after taking charge of the company earlier that year. Two years later, Weill mastered the buyout of Primerica - a conglomerate that had already bought life insurer A L Williams as well as stock broker Smith Barney. The new company took the Primerica name, and employed a "cross-selling" strategy such that each of the entities within the parent company aimed to sell each other's services. Its non-financial businesses were spun-off
Finally, in November 1997, Travelers Group (which had been renamed again in April 1995 when they merged with Aetna Property and Casualty, Inc.), made the $9 billion deal to purchase Salomon Brothers, a major bond dealer and bulge bracket investment bank.. Salomon Brothers absorbed Smith Barney into the new securities unit termed Salomon Smith Barney; a year later, the division incorporated Citicorp's former securities operations as well. The Salomon Smith Barney name was ultimately abandoned in October 2003 after a series of financial scandals that tarnished the bank's reputation.
Citicorp and Travelers merger
On April 6, 1998, the merger between Citicorp and Travelers Group was announced to the world, creating a $140 billion firm with assets of almost $700 billion. The deal would enable Travelers to market mutual funds and insurance to Citicorp's retail customers while giving the banking divisions access to an expanded client base of investors and insurance buyers.
Although presented as a merger, the deal was actually more like a stock swap, with Travelers Group purchasing the entirety of Citicorp shares for $70 billion, and issuing 2.5 new Citigroup shares for each Citicorp share. Through this mechanism, existing shareholders of each company owned about half of the new firm. While the new company maintained Citicorp's "Citi" brand in its name, it adopted Travelers' distinctive "red umbrella" as the new corporate logo, which was used until 2007.
The chairmen of both parent companies, John Reed and Sandy Weill respectively, were announced as co-chairmen and co-CEOs of the new company, Citigroup, Inc., although the vast difference in management styles between the two immediately presented question marks over the wisdom of such a setup.
The remaining provisions of the Glass-Steagall Act - enacted following the Great Depression - forbade banks to merge with insurance underwriters, and meant Citigroup had between two and five years to divest any prohibited assets. However, Weill stated at the time of the merger that they believed "that over that time the legislation will change...we have had enough discussions to believe this will not be a problem". Indeed, the passing of the Gramm-Leach-Bliley Act in November 1999 vindicated Reed and Weill's views, opening the door to financial services conglomerates offering a mix of commercial banking, investment banking, insurance underwriting and brokerage.
In 2000, Citigroup acquired Associates First Capital Corporation, which, until 1989, had been owned by Gulf+Western (now part of National Amusements). The Associates was widely criticized for predatory lending practices and Citi eventually settled with the Federal Trade Commission by agreeing to pay $240 million to customers who had been victims of a variety of predatory practices, including "flipping" mortgages, "packing" mortgages with optional credit insurance, and deceptive marketing practices.
Travelers spin off
The company spun off its Travelers Property and Casualty insurance underwriting business in 2002. The spin off was prompted by the insurance unit's drag on Citigroup stock price because Traveler's earnings were more seasonal and vulnerable to large disasters, particularly the September 11th, 2001 attack on the World Trade Center in downtown New York City. It was also difficult to sell this kind of insurance directly to customers since most industrial customers are accustomed to purchasing insurance through a broker.
The Travelers Property Casualty Corporation merged with The St. Paul Companies Inc. in 2004 forming The St. Paul Travelers Companies. Citigroup retained the life insurance and annuities underwriting business; however, it sold those businesses to MetLife in 2005. Citigroup still heavily sells all forms of insurance, but it no longer underwrites insurance.
Despite their divesting Travelers Insurance, Citigroup retained Travelers' signature red umbrella logo as its own until February 2007, when Citigroup agreed to sell the logo back to St. Paul Travelers, which renamed itself Travelers Companies. Citigroup also decided to adopt the corporate brand "Citi" for itself and virtually all its subsidiaries, except Primerica and Banamex.
Subprime mortgage crisis
Heavy exposure to troubled mortgages in the form of Collateralized debt obligation (CDO's), compounded by poor risk management led Citigroup into trouble as the subprime mortgage crisis worsened in 2008. The company had used elaborate mathematical risk models which looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages. Indeed, trading head Thomas Maheras was close friends with senior risk officer David Bushnell, which undermined risk oversight.. As Treasury Secretary, Robert Rubin was said to be influential in lifting the regulations that allowed Travelers and Citicorp to merge in 1998. Then on the board of directors of Citigroup, Rubin and Charles Prince were said to be influential in pushing the company towards MBS and CDOs in the subprime mortgage market.
As the crisis began to unfold, Citigroup announced on April 11, 2007 that it would eliminate 17,000 jobs, or about 5 percent of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock. Even after securities and brokerage firm Bear Stearns ran into serious trouble in summer 2007, Citigroup decided the possibility of trouble with its CDO's was so tiny (less than 1/100 of 1%) that they excluded them from their risk analysis. With the crisis worsening, Citigroup announced on January 7, 2008 that it was considering cutting another 5 percent to 10 percent of its work force, which totaled 327,000.
Over the past several decades, the United States government has engineered at least four different rescues of the institution now known as Citigroup. During the most recent tax-payer funded rescue, by November 2008, Citigroup was insolvent, despite its receipt of $25 billion in federal TARP bailout money, and on November 17, 2008 Citigroup announced plans for about 52,000 new job cuts, on top of 23,000 cuts already made during 2008 in a huge job cull resulting from four quarters of consecutive losses and reports that it was unlikely to be in profit again before 2010. Many senior executives were fired but Wall Street responded by dropping its stock market value to $6 billion, down from $300 billion two years prior. As a result, Citigroup and Federal regulators negotiated a plan to stabilize the company and forestall a further deterioration in the company's value. The arrangement calls for the government to back about $306 billion in loans and securities and directly invest about $20 billion in the company. The assets remain on Citigroup's balance sheet; the technical term for this arrangement is ring fencing. In a New York Times op-ed, Michael Lewis And David Einhorn described the $306 billion guarantee as "an undisguised gift" without any real crisis motivating it. The plan was approved late in the evening on November 23, 2008. A joint statement by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp announced: "With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."
Citigroup in late 2008 holds $20 billion of mortgage-linked securities, most of
which have been marked down to between 21 cents and 41 cents on the dollar, and
has billions of dollars of buyout and corporate loans. It faces potential
massive losses on auto, mortgage and credit card loans if the economy worsens.
On January 16, 2009, Citigroup announced its intention to reorganize itself into two operating units: Citicorp for its retail and investment banking business, and Citi Holdings for its brokerage and asset management. Citigroup will continue to operate as a single company for the time being, but Citi Holdings managers will be tasked to "take advantage of value-enhancing disposition and combination opportunities as they emerge", and eventual spin-offs or mergers involving either operating unit have not been ruled out. On February 27, 2009 Citigroup announced that the United States government would be taking a 36% equity stake in the company by converting $25 billion in emergency aid into common shares. Citigroup shares dropped 40% on the news.
On June 1, 2009, it was announced that Citigroup Inc. would be removed from the Dow Jones Industrial Average effective June 8, 2009 due to significant government ownership. Citigroup Inc. was replaced by Citigroup's sister firm, insurance company Travelers Co.
Citigroup is divided into four major business groups: Consumer Banking, Global Wealth Management, Global Cards, and Institutional Clients Group.
Global Consumer Group
This division of Citigroup generated $19.8billion in net revenue and more than $4billion in net income in 2006 , Global Consumer Group comprises four sub-divisions: Cards (credit cards), Consumer Lending Group (Real-Estate Lending, Auto Loans, Student Loans), Consumer Finance, and Retail Banking. Targeting individual consumers as well as small- to medium-sized businesses, GCG offers financial services across its worldwide branch network, including banking, loans, insurance, and investment services. On March 31, 2008, Citigroup announced that it will create 2 new global businesses - Consumer Banking and Global Cards out of the existing Global Consumer Group. Citigroup Nominates 4 Independent Directors by New York Times (March 16, 2009)
Citi Cards is responsible for around 40% of the profits with GCG, and represents the largest issuer of credit cards across the world as well as a 3,800-point ATM network across 45 countries.
Consumer Finance division (branded as "CitiFinancial") accounts for about 20% of GCG's profits, and offers personal loans and homeowner loans to consumers in 20 countries worldwide. There are over 2,100 branches in the U.S. and Canada. The takeover of Associates First Capital in September 2000 enabled CitiFinancial to expand its reach outside of the United States, particularly capitalizing on Associates' 700,000 customers in Japan and Europe. Citi ended its CitiFinancial operations in the UK in 2008 Citifinancial is head by Mary Mcdowell in Baltimore, Maryland.
Finally, the retail bank encompasses the Citi's global branch network, branded Citibank. Citibank is the third largest retail bank in the United States based on deposits (although it has considerably fewer retail branches than many of its smaller rivals), and it has Citibank branded branches in countries throughout the world, with the exception of Mexico; In Mexico Citigroup's bank operations are branded as Banamex is the country's second largest bank and a Citigroup subsidiary.
Global Wealth Management
Global Wealth Management divides itself into Citi Private Bank, Citi Smith Barney and Citi Investment Research, and generated 7% of Citigroup's total revenue in 2006. As revenues are predominantly derived from investment income, Global Wealth Management is more sensitive to the direction and level of the equity and fixed-income markets than other divisions of the company.
Citi Private Bank
Citi Private Bank provides banking and investment services to high net worth individuals, private institutions, and law firms. Acting as a gateway to all of Citigroup's products, Citi Private Bank offer traditional investment products and alternative choices, with all clients assigned a Private Banker to personally deal with their portfolio. Citi Private Bank partners with Polaris Software Lab Ltd for banking and financial soultions.
Citi Smith Barney
Citi Smith Barney was Citi's global private wealth management unit, providing brokerage, investment banking and asset management services to corporations, governments and individuals around the world. With over 800 offices worldwide, Smith Barney held 9.6 million domestic client accounts, representing $1.562 trillion in client assets worldwide.
Citi announced on January 13, 2009 that they would give Smith Barney to Morgan Stanley investment bank to combine their brokerage firms in exchange for $2.7 billion and 49% interest in the joint venture. Citi's urgent need for cash is reputed to be a driving force in this deal. Many have speculated that this may be the beginning of the end of Citi's "financial supermarket" approach.
Citi Investment Research
Citi Investment Research is Citi's equities research unit, with 390 research analysts across 22 countries. Citi Investment Research covers 3,100 companies, representing 90 percent of the market capitalization of the major global indices, providing macro and quantitative analysis of global markets and sector trends.
Citi Institutional Clients Group
Citi announced on October 11, 2007 the formation of the new Institutional Clients Group comprising Citi Markets & Banking (CMB) and Citi Alternative Investments (CAI) with Vikram Pandit, then 50, as its Chairman and CEO. Vikram Pandit was promoted to CEO of the entire company two months later.
Citi Markets and Banking
Containing Citi's most market-sensitive divisions, "CMB" is divided into two primary businesses: "Global Capital Markets and Banking" and "Global Transaction Services" (GTS). Global Capital Markets and Banking provides investment- and commercial-banking services covering institutional brokerage, advisory services, foreign exchange, structured products, derivatives, loans, leasing, and equipment finance. Meanwhile, GTS offers cash-management, trade finance and securities services to corporations and financial institutions worldwide. CMB is responsible for around 32% of Citigroup's annual revenues, generating just under US $30 billion in 2006 financial year.
Citi Alternative Investments
Citi Alternative Investments (CAI) is an alternative investment platform that manages assets across five classes - private equity, hedge funds, structured products, managed futures, and real estate. Across 16 "boutique investment centers", it offers various funds or separate accounts that utilize alternative investment strategies, as opposed to the mainstream mutual funds that it recently sold to Legg Mason. CAI manages Citigroup proprietary capital as well as institutional investments from third-parties and high-net-worth investors. As of June 30, 2007, CAI holds US$59.2 billion under capital management, and contributed 7% of Citigroup's 2006 income