Everything about Citigroup totally explained
Citigroup Inc. (), operating as
Citi, is a major
American financial services company based in
New York City, formed from the merger of
Citicorp and
Travelers Group on
April 7,
1998. According to
Forbes Global 2000 in March 2007, it's the largest company in the world, however in 2008 it dropped out of the top 10 in Forbes. with total
assets of
US $2.2 trillion, as of December 2007. The company employs 358,000 staff around the world, and holds over 200 million customer accounts in more than 100 countries. It is the world's largest bank by revenues as of 2008. and its stock has been a component of the
Dow Jones Industrial Average since
March 17,
1997.
On
December 11,
2007,
Vikram Pandit was named Citigroup's
CEO, while
Sir Win Bischoff was named chairman.
Charles Prince, the Chairman and CEO, had resigned on
November 4,
2007. Between that time, Bischoff had served as interim CEO while
Robert Rubin was chairman of the board.
History
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.
Citicorp
The history of the 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 the joining the new U.S. national banking system, and it became the largest American bank by 1895. 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. formed a strategic alliance with Primerica that would lead to its amalgamation into a single company in December 1993. With the acquisition, the group became Travelers Inc. Property & casualty and life & annuities
underwriting capabilities were added to the business.
Travelers spin off
The company spun off its Travelers Property and Casualty insurance underwriting business. 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. 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.
On
January 7, 2008 Citigroup announced that it's considering cutting 5 percent to 10 percent of its work force, which totals 327,000.
Business model
Citigroup and its predecessor companies use the "diversified
financial services business model" first invented by
Prudential in the late seventies. Simply put, this model attempts to conglomerate 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 volatility. 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 separate companies strictly selling products on their own.
During the era of Sandy Weill, much of Citigroup and predecessor's efforts were focused on acquisitions. Much of the efforts were focused in the stock brokerage and investment banking areas, and most of the acquisitions were companies which had recently had problems and were selling at a low price. After the acquisition, the management team would usually engage in aggressive cost cutting to build up cash for the next deal.
Former CEO, Chuck Prince, has said "the day of the transformative deal (merger) is over". This is thought to refer to mega deals like the Citicorp/Travelers merger, as Citigroup continues to acquire. The focus of the company though, is said to have changed to organic revenue growth, that's selling more products instead of focusing on acquisitions and cost cutting alone to increase profit.
Citigroup's 2005 sale of the remainder of Travelers Insurance to MetLife was described by the press as the death knell of the bank-insurance cross-selling model. This is a false analysis though, as Citigroup continues to cross sell insurance, but no longer underwrites it. This focus on selling almost all kinds of financial products, but not necessarily "manufacturing them", is also what prompted Citigroup to recently trade its mutual fund business to Legg Mason in return for more stockbrokers.
Divisions
Citigroup is divided into three major business groups: Global Consumer, Global Wealth Management, Global Services and the newly formed Citi Institutional Clients group (as of October 11, 2007) comprising Citi Markets & Banking (CMB) and Citi Alternative Investments (CAI).
Global Consumer Group
Generating 55% of Citigroup's 2006 revenues, 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'll create 2 new global businesses - Consumer Banking and Global Cards out of the existing Global Consumer Group.
Citi Cards, CitiFinancial, and Citibank
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. The Consumer Finance division (branded "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 50 CitiFinancial branches in the UK 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. Finally, the retail bank encompasses the Citi's global branch network, branded
Citibank. Citibank is the third largest retail bank in the United States, 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 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.
Citi Smith Barney
Citi Smith Barney is 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 holds 9.6 million domestic client accounts, representing $1.562 trillion in client assets worldwide.
Citi Investment Research
Citi Investment Research is Citi's equities research unit comprised of 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. Vikram Pandit was promoted to CEO of the entire company two months later. CMB are 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.
Real estate
Citigroup's most famous office building is the
Citigroup Center, a diagonal-roof
skyscraper located in
East Midtown,
Manhattan,
New York City, which despite popular belief isn't the company's headquarters building. Citigroup has its headquarters across the street in an anonymous-looking building at 399
Park Avenue (the site of the original location of the City National Bank). The headquarters is outfitted with nine luxury dining rooms, with a team of private chefs preparing a different menu for each day. The management team is on the third and fourth floors above a Citibank branch. Citigroup also leases a building in the
TriBeCa neighborhood in Manhattan at
388 Greenwich St, that serves as headquarters for its Investment and Corporate Banking operations and was the former headquarters of the Travelers Group.
Strategically, all of Citigroup's New York City real estate, excluding the company's Smith Barney division and Wall Street trading division, lies along the
New York City Subway's
IND Queens Boulevard Line, served by the
E and
V trains. Consequently, the company's Midtown buildings—including 787 Seventh Avenue, 666 Fifth Avenue, 399 Park Avenue, 485 Lexington, 153 East 53rd Street (Citigroup Center), and
Citicorp Building in
Long Island City, Queens, are all no more than two stops away from each other. In fact, every company building lies above or right across the street from a subway station served by the
E or
V.
Chicago also plays home to an architectural beauty operated by Citigroup.
Citicorp Center has a series of curved archways at its peak, and sits across the street from major competitor
ABN AMRO's
ABN AMRO Plaza. It has a host of retail and dining facilities serving thousands of
Metra customers daily via the
Ogilvie Transportation Center.
Business issues
Citigroup proprietary government bond trading scandal
Citigroup was criticized 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.
Regulatory action
On March 23, 2005, the NASD announced total fines of $21.25 million against Citigroup Global Markets, Inc., American Express Financial Advisors and Chase Investment Services regarding suitability and supervisory violations relating to mutual fund sales practices between January 2002 and July 2003. The case against Citigroup involved recommendations and sales of Class B and Class C shares of mutual funds.
On June 6, 2007, the NASD announced more than $15 million in fines and restitution against Citigroup Global Markets, Inc., to settle charges related to misleading documents and inadequate disclosure in retirement seminars and meetings for BellSouth Corp. employees in North Carolina and South Carolina. NASD found that Citigroup didn't properly supervise a team of brokers located in Charlotte, N.C., who used misleading sales materials during dozens of seminars and meetings for hundreds of BellSouth employees.
The Terra Securities Scandal
In November 2007 it became public that the Citigroup is heavily involved in the
Terra Securities scandal, which involved investments by eight municipalities of Norway in various hedge funds in the United States bond market. The funds were sold by
Terra Securities ASA to the municipalities, while the products were delivered by Citigroup. Terra Securities ASA filed for bankrupty November 28, 2007, the day after they received a letter from The
Financial Supervisory Authority of Norway announcing withdrawal of permissions to operate. The same letter also stated, "
The Supervisory Authority contends that Citigroup's presentation, as well as the presentation from Terra Securities ASA, appears insufficient and misleading because central elements like information about potential extra payments and the size of these are omitted."
Political donations
Citigroup is the 16th largest political campaign contributor, out of all organizations, according to the
Center for Responsive Politics. Members of the firm have donated over $23,033,490 from 1989-2006, 49% of which went to Democrats and 51% of which went to Republicans.
Further Information
Get more info on 'Citigroup'.
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