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Categories: Citigroup | Banks of the United States | Companies traded on NYSE | Fortune 500 | Fortune 1000 | Fortune Global 500 | Forbes 2000
Citigroup
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Citigroup (NYSE:C http://www.nyse.com/about/listed/lcddata.html?ticker=NaodW29-item5221c6887521d3c
1 ) is the largest financial services company in the world, and during the past 4 years it has alternated with General Electric in being the largest market cap and profit corporation. Its formation was announced on April 7, 1998 through a merger of Citicorp and Travelers Group. It was the first US company to combine banking with insurance underwriting since the Great Depression, challenging the existing laws of the time. In 2003 it made 17.9 billion dollars in profit. The compnay has over 275,000 employees and over 200 million accounts in 100 countries.
Despite its size, it currently only has about a 5 percent market share in financial services in the United States (which is the largest industry and highly fragmented).
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History
Commercial Credit
The history of the corporation now known as Citigroup is primarily the history of its Chairman, Sandy Weill, who spun off a Consumer Finance company known as Commercial Credit from Control Data Systems, and used it to begin assembling a gigantic financial conglamerate. Consumer Finance is essentially the business of lending to people with poor credit histories at high interest rates. Some critics have called this "predatory lending" or "loan sharking". After aquiring some small consumer finance companies, Commercial Credit aquired the much larger Primerica, and adopted the more well known Primerica name for the holding company.
Primerica
Primerica was a conglomerate patterned after General Electric by the famous mutual fund manager Gerry Tsai . Like GE was doing at the time, Tsai was trying to position Primerica heavily into the financial services realm, aquiring A L Williams , a controversial MLM insurance agency company, and Smith Barney, a large stock broker. He bought Smith Barney at the height of a bull market, and the resulting stock market crash put a tremendous strain on the overall company, forcing him to sell. Tsai had inserted lucrative golden parachutes into his contract agreements because he knew he was going to have to sell, which made the deal more expensive than what Commercial Credit was willing to pay. Weill was then convinced to buy the company because he would get to use the company's Gulfstream G-4 jet.
Upon aquiring the company in 1988, Weill spun off the non-financial businesses of the conglomerate, and attempted to institute the practice of "cross-selling " (also called "cross-servicing "), which he had envisioned previously at American Express. Instead of the corporation owning a stock brokerage, insurance agency, and consumer finance company and letting them each run essentially seperately, Weill was interested in each selling each others' products. For example, the insurance agents could sell Smith Barney mutual funds.
During this period Weill became interested in the Travlers Insurance company, which had come to Weill for a cash injection because of losses sustained during Hurricaine Andrew. Weill also inserted management into that company to oversee operations and cost cutting. This eventually led to the aquisition of Travelers Insurance.
Travelers Group
The Travelers Insurance aquistion added property and casuality, and life and annuities underwriting capabilities to the group. It also brought along the Travelers red umbrella logo, which Weill applied to all the businesses within the group. During this time Travelers aquired Shearson, which was a large stock brokerage Weill used to run. It then aquired Salomon Brothers, a famous Investment Bank. Weill attempted to negotiate a deal to merge with JP Morgan, but this was rejected because the JP Morgan CEO would have wanted to become CEO of the combined company. Weill was eventually sucsessfull at convincing John Reed, the CEO of Citicorp, to merge.
Citicorp
Citicorp was the descendant of City National Bank, founded in New York. It was one of the oldest Banks in the United States, and had the largest international branch presence of any United States headquartered bank. It specialized in large corporate banking, and was one of the largest banks in the United States at the time. The CEO at the time of the merger, John Reed, was instrumental in pushing for the acceptance and use of ATM machines, and had seen the company through a financially bleak period when it had many problems with international loans defaulting. Reed had been trying to change the corporate culture of Citicorp, for example by hiring top executives from consumer product companies, not banks. Reed felt that the chance to merge with the Travelers Group would help effect change in this area.
Merger
The merger took place in 1998. This was illegal because the remaining provisions of the Glass-Steagall Act (legislation stemming from the United States' Great Depression era) did not allow banks to merge with insurance underwriters. Chuck Prince and his team of lawyers, studying the law, found that the Federal Reserve could grant the companies a two year trial period before they would have to divest the insurance underwriting businesss. The CEO's bet that they could change the law before the expiration date. The law was finally changed in 1999 when Glass-Steagall was invalidated by the passing of the Gramm-Leach-Bliley Financial Services Modernization Act.
Post Merger History
In order to convince Citicorp to merge, Weill proposed a structure of Co-CEO's, consisting of himself and John Reed. This strategy was denounced immediately by many in the press and many research analysts, as being unworkable. Conflicts within the company did eventually lead to Reed getting fired.
The company spun off its Travelers Property and Casualty insurance underwriting business, because it always caused a drag on the Citigroup stock price because it's earnings were seen as more seasonal and vunerable to large disasters. Citigroup retained the life insurance and annuities underwriting business.
Scandals
Citigroup has been involved with many scandals. Some of these are in specific businesses and are shared amongst other businesses within that industry, while some result from a conflict or collusion between different divisions of Citigroup. This second type of scandal have caused some to call into question the "financial supermarket" aspect of Citigroup.
Associates
The first major scandal of Citigroup was when it aquired the Consumer Finance company Associates First Capital in 2000. Associates was already under attack for what were called "predatory lending" practices, specifically the selling of single premium credit insurance. Upon being aquired the same attacks were turned towards Citigroup, who stopped the practice of selling the single premium credit insurance, and instituted other changes. In the end the company was fined for the former practices. The present combined consumer finance division, called CitiFinancial continues to share in the general contraversy over consumer finance.
Biased Research
The next major scandal was the acusation that Citigroup and other Investment Banks had stuck secret deals with companies that said that the Bank's Stock Research division would rate that company a "Buy" if it would do Investment Banking with that division. Implicated by that scandal was analyst Jack Grubman . This scandal led to some questioning if the financial services conglamerate concept would lead to conflicts of interest such as this. The premise of this question however, is considered by some to be somewhat flawed insofar as Research companies have almost always been owned by Investment Banks, even before the repeal of Glass-Steagal. The firm eventually payed the largest fine in the "global settlement" with the state, resulting from conflicts of interest between research and investment banking at Salomon Smith Barney.
To help put investors at ease, Citigroup hired one of its most outspoken critics, Sallie Krawcheck, to head Smith Barney (now a pure stock brokerage division), which was seperated from the investment bank within the corporate structure. It dropped the "Salomon" from the name, as this name historically denoted investment banking.
Primerica
Primerica is now the brand name given to Citigroups Multi-Level-Marketing insurance and other financial services sales force. This division was formerly known as A L Williams. Critics call it a cult, or critize it's sales practices. Historically A L Williams was the major force in popularizing Term Life Insurance . See the Primerica article for more details.
Enron, and Parmalat
Citigroup was also accused of helping Enron and other companies hide their losses by loaning money to those companies in a special way that would reduce liabilities visible on the balance sheet. In May 2004 the company agreed to pay $2.65 billion, or $1.64 billion after tax , to settle a class action lawsuit brought on behalf of purchasers of WorldCom securities.
Japan
Japan Private Banking Scandal
Citigroup removed three senior executives in the wake of a banking scandal in Japan. The scandal involved the Private Bank, the division that deals with very wealthy customers. It was alleged that the Private Bank failed to follow certain anti-money laundering procedures, that it used deceptive sales tactics, and that it assisted a customer in doing transactions which disrupted the financial markets or were fraudulent. This caused for the Japan regulators to shut down the Private Bank.
Deryck Maughan , a Citigroup vice chairman and head of Citigroup International, Thomas W. Jones , chairman and chief executive of the global investment management division, and Peter K. Scaturro , head of Citi's private bank, will be leaving the company. Maughan had been with Citigroup and its predessecor Salomon Brothers since 1983. Jones and Scaturro were both members of the Citigroup management committee. A memo from Chief Executive Charles Prince said that Citigroup President Robert B. Willumstad would take charge of the businesses run by the three departing executives.
Europe
Citigroup Proprietary Government Bond Trading Scandal
Citigroup was critized by the European Financial Governmence institutes for disrupting the European bond market by rapidly selling €11 billion worth of bonds on August 2, 2004 on the MTS Group trading platform, driving down the price, and then buying it back at cheaper prices. An investigation is pending.
Business Model
Citigroup and its predassesor companies use the "diversified financial services business model" first invented by Prudential in the late seventies. Simply put, this model attempts to conglamerate many types of finance companies, such as stock brokers, banks, insurance companies, and others. This is done because each of those businesses do better or worse at different times of the business cycle, and so owning all of them balances things out and creates in theory less earnings volitility. This is also done because customers usually use many different kinds of financial products and attempting to convince them to use more products from the same company sells more products more cheaply, compared to those seperate companies strictly selling products on their own.
During the era of Sandy Weill, much of Citigroup and predecesor's efforts were focused on aquistisions. Much of the efforts were focused in the stock brokerage and investment banking areas, and most of the aquistions were of companies which had recently had problems and were selling at a low price. After the aquisition, the management team would usually engage in agressive cost cutting to build up cash for the next deal.
The present CEO, Chuck Prince, has said "the day of the transformative deal (meger) is over". This is thought to refer to mega deals like the Citicorp/Travelers merger, as Citigroup continues to aquire. The focus of the company though, is said to have changed to organic revenue growth, that is selling more products instead of focusing on aquisitions and cost cutting alone to increase profit.
Real estate
It's most famous office building is the Citigroup Center, a diagonal-roof skyscraper located in New York City's Midtown Manhattan, although it barely has any office presence in there, its headquarters moved across the block to an anonymous building on 399 Park Avenue (the site of the original location of the City National Bank). Smith Barney leases a building in the Tribeca neighborhood in Manhatten, the former headquarters of the Travelers Group and famous for its red Umbrella Sculpture.
Divisions
- Global Consumer Group
- Cards
- World’s largest provider of credit cards
- Second Quarter '04 Net Income of $1.012 billion
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Consumer Finance
- Largest Consumer Finance company in the world
- Second Quarter '04 Net Income of $594 million
- Retail Banking
- Citibank: highest-rated, leading global brand
- Second Quarter '04 Net Income of $1.156 billion
- Cards
- Global Corporate and Investment Bank
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Capital Markets & Banking
- #1 underwriter of Combined Debt and Equity and Equity-related transactions
- Second Quarter '04 Net Income of $1.502 billion
- Global Transaction Services
- Leading provider of transaction products; $7.0 trillion in assets under custody
- Second Quarter '04 Net Income of $261 million
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Capital Markets & Banking
- Global Investment Management
- Life Insurance & Annuities (Life and Annuity Insurance Underwriter)
- One of the fastest growing life insurers in the U.S with expanding international presence
- Second Quarter '04 Net Income of $230 million
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Private Bank
- Offers widest range of services to more than 25,000 of the world’s most successful and influential families
- Second Quarter '04 Net Income of $152 million
- Asset Management (Mutual Funds, Pension Funds , and investment for institutions)
- A leader with $490.5 billion in assets under management
- Second Quarter '04 Net Income of $69 million
- Life Insurance & Annuities (Life and Annuity Insurance Underwriter)
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Smith Barney
- Private Client Services (Stock Brokerage)
- A leader in managed accounts with $1.087 trillion in total client assets
- Second Quarter '04 Net Income of $209 million
- Private Client Services (Stock Brokerage)
Subsidiaries
- Citibank, provinding consumer banking products.
- Citimortage , Mortgage Lender
- Citifinancial, Consumer finance aka sub-prime lending
- Diner's Club International, credit cards.
- Grupo Financiero Banamex , largest Mexico bank
- Primerica, engages in multi-level-marketing of financial services
- SmithBarney, investment services , both retail full service brokerage, private client services , and formerly the brand name used for the Investment bank
- Travelers Life & Annuity , insurance services.
Stock
Echanges
It's listed at the
Indicies
It's part of the
- Dow Industrials
- S&P 500
Management
- Job: name, age, pay
- Chairman: Sanford I. (Sandy) Weill, 70, $30.67M
- CEO: Charles O. (Chuck) Prince III, 54, $26.81M
- COO: Robert B. Willumstad, 58, $26.16M ([1] http://www.citigroup.com/citigroup/profiles/willumstad/ )
- CFO: Sallie Krawcheck , 39, $9.62M ([2] http://www.citigroup.com/citigroup/profiles/krawcheck/ )
Conference calls
- Oct 14, 2004 - Earnings Conference Call (Q3 2004) (slides http://www.citigroup.com/citigroup/fin/data/rev3q04.pdf ) (audio http://us.rd.yahoo.com/finance/confcall/streetevents/SIG=13bo5mvs7/*http%3a//web
.servicebureau.net/conf/meta?i=1112495229&c=2343&m=was&u=/w_ccbn.xsl&date_ticker
=10_14_2004_C ) - Oct 20, 2003 - 2003 Third Quarter Earnings Review (slides http://www.citigroup.com/citigroup/fin/data/rev3q03.pdf ) (audio http://video.vdat.com/playfile.asp?brand=VN&file=26483_27342.asf&stream=w&media=
a ) (*exclusive, last call with Sandy Weill)
Analyst coverage
Research analysts covering Citigroup. See also [3] http://finance.yahoo.com/q/sa?s=C
- Balkind, Jon (Fox-Pitt Kelton , Inc.)
- Richard Bove (Punk, Ziegel & Co. )
- Andrew Collins (Piper Jaffray )
- Jeffery Harte (Sandler O'Neill & Partners L.P. )
- Michael Mayo (Prudential Financial)
- Richard Strauss (Deutsche Bank)
- Roth, Susan (Credit Suisse First Boston)
- Schorr, Glenn (UBS AG)
- Siedman, Chris (Hoefer & Arnett Inc. )
- Stumpf, David (A. G. Edwards & Sons , Inc.)
- Worthington, Kenneth (CIBC World Markets)
Diversity
Citigroup recieved a 100% rating on the Corporate Equality Index released by the Human Rights Campaign starting in 2004, the third year of the report. In addition, the company was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine.
See also
Ancestor companies
- City Bank of New York 1812 (founded)
- Farmers’ Fire Insurance Loan Company 1822
- Merchants Exchange Bank in the City of New York 1829
- First National Bank of the City of New York 1863
- The Travelers Life and Accident Insurance Company 1864
- Kuhn, Loeb & Co. 1867
- Charles D. Barney & Co. 1873
- Ferdinand Salomon 1880
- Hayden Stone & Co. 1892
- Rhoades & Co. 1898
- Shearson Hammill & Co. 1902
- E.F. Hutton & Co. 1904
- Commercial Credit 1912
- Carter, Berlind, Potoma & Weill 1960
References
- Tearing Down the Walls by Monica Langley ISBN 0743247264
External links
-
Corporate website http://www.citigroup.com/
- Citigroup Reaches Settlement on WorldCom Class Action Litigation for $1.64 Billion After-Tax http://www.citigroup.com/citigroup/press/2004/040510a.htm
-
Yahoo! - Citigroup Inc. Company Profile http://biz.yahoo.com/ic/58/58365.html
- C: Star Analysts for CITIGROUP - Yahoo! Finance http://finance.yahoo.com/q/sa?s=C
Family tree
- Citigroup's ancestor companies 1812 - 2000 http://www.citigroup.com/citigroup/corporate/history/data/tree85x11.pdf
Articles
- Forecaster of the Month: Citigroup's Jones is a two-time winner - Financial - Banks - Financial Services - Economy - Bond Market http://cbs.marketwatch.com/news/story.asp?dist=¶m=archive&siteid=mktw&guid=%
7B6717F372%2D4690%2D42AC%2DA98C%2DA400FBEFB268%7D&garden=&minisite= - The New York Times > Business > World Business > U.S. Looking at Citigroup's Accounting in Argentina - May 6, 2004 http://www.nytimes.com/2004/05/06/business/worldbusiness/06citi.html?ex=11044692
00&en=96d2727305de7e84&ei=5070
Categories: Citigroup | Banks of the United States | Companies traded on NYSE | Fortune 500 | Fortune 1000 | Fortune Global 500 | Forbes 2000