Citigroup Inc.

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Citigroup, Inc.
Citigrouplogo.jpg
Founded 1998
Headquarters New York City, NY
Key People Michael L. Corbat, CEO
Employees 275,000
Products Consumer, corporate and investment banking and finance, global asset management
Website www.citigroup.com

Citigroup Inc. is one of the world's largest banking companies, repeatedly ranking in the world's top 10. Because of losses suffered during the 2008 crisis in mortgage-related securities, Citigroup split into two businesses, Citicorp and Citi Holdings, in January of 2009. Citicorp focuses on traditional banking around the world, while Citi Holdings holds the company's riskier assets.

The move by CEO Vikram Pandit allowed Citigroup to sell or spin off the Citi Holdings assets to raise cash. It also revealed the company's growing focus on back-to-basics lending and deposit-gathering, and dismantled the "financial supermarket" created by the company a decade earlier. The announcement of the split came in conjunction with the report of a fourth-quarter net loss of $8.29 billion — the company's fifth straight quarterly loss.

Citigroup suffered more than $65 billion in losses in late 2008 alone, more than half stemming from mortgage-related securities. The U.S. government stepped in twice to rescue the company with bailouts totaling $45 billion.[1] Since then, the company had been divesting itself of many of its assets. On Jan. 13, 2009, Citigroup announced a deal to spin out Smith Barney, its broking arm, into a joint venture with Morgan Stanley’s broker.[2]

Citigroup would still receive its share of revenue from the joint venture, but Morgan Stanley is taking a 51 percent stake in the venture, called Morgan Stanley Smith Barney. Morgan Stanley also had an option to take further stakes. James Gorman is the venture’s chairman.

In the reorganization of 2009, the new Citicorp included the retail bank; the corporate and investment bank; the private bank, which serves wealthy individuals; and global transaction services.

In May of 2009, Ajay Banga, chief executive of Citi in Asia-Pacific, told the Financial Times that the bank, which the U.S. government rescued last year, also planned to expand lending across the region in spite of the “challenging” economic environment.[3]

Citi Holdings — which would account for $850 billion of Citigroup's $1.95 trillion in assets — would include Citi's asset management and consumer finance segments, including CitiMortgage and CitiFinancial. It would also be in charge of Citi's 49 percent stake in the joint brokerage with Morgan Stanley, and the pool of about $300 billion in mortgages and other risky assets that the U.S. government agreed to backstop in late 2008.[4]

On June 1, 2009, Citigroup was removed from the Dow Jones Industrial Average index (effective June 8) because it was in the midst of a "substantial restructuring." Robert Thomson, editor-in-chief for all of Dow Jones, said, "We genuinely hope that once the bank has refashioned itself that we will again be able to consider it for inclusion - Citigroup is a renowned institution, not only in this country, but around the world."[5]

In September of 2011, Moody's downgraded Bank of America Corp., Wells Fargo & Co. and Citigroup Inc.[6]

On April 17, 2012, executive compensation and say-on-pay rules came into the spotlight when Citigroup shareholders voted to reject the bank’s executive compensation package at the annual meeting, leaving Citigroup with the option to either acknowledge the shareholder recommendation through future decision making, or to ignore the advisory vote entirely.[7]

In July 2012, Citi and the Price Futures Group announced an agreement to introduce Price Futures clients to CitiFX Pro, a retail forex trading platform. The partnership is seen as an effort to link the Price Group's introducing broker arm with Citi Bank's trading platform. [8]

In September 2012, Citigroup announced the launch of a commodity trade finance unit to be headed by Kris Van Broekhoven, whom it hired from Deutsche Bank. The new unit will be part of Citigroup's transaction services business, a spokesman said.[9]

History

Citigroup was formed in 1998 when banking giant Citicorp merged with insurance icon Travelers Group and began merging companies inside the two acquisitive titans. Citigroup also began rapidly acquiring other financial-service firms in the U.S. and abroad, including Japanese consumer-finance company Associates First Capital and Poland's Bank Handlowy w Warszawie SA in 2000.[10]

In mid-2008, Citigroup had about 200 million customer accounts and approximately $2.2 trillion assets. It ranked as the world's number seven bank by market capitalization with around $140 billion.[11] But like its arch-rival Bank of America, Citigroup took some heavy blows from the U.S subprime mortgage meltdown in 2007 and suffered losses and writedowns of around $40 billion.[12]

On Feb. 23, 2009, Citigroup officials were in active talks with federal regulators about plans for the government to take a bigger ownership stake in the bank. Citigroup approached the regulators with a plan that would allow them to convert a large amount of the government’s $45 billion of preferred shares, which is treated as debt, into common stock. The government owns a stake of roughly 8 percent, but that could grow to as much as 40 percent.

Citigroup may become the latest in a string of troubled U.S. companies that have recently sold stakes in themselves to foreign entities. Citigroup sources revealed in late May 2008 that the bank may sell a stake to the China Development Bank after negotiations that began in December 2007 were interrupted by Pandit's March 2008 management re-shuffle.[13]

In November of 2008, the company took radical action to cushion the blows of financial turmoil and revive its flagging share price, announcing plans to cut 52,000 jobs, or one in seven employees, and slash costs by about $10 billion (£6.6bn). The moves were a dramatic escalation of Citi’s efforts to deal with a crisis that has forced it to record a loss in each of the previous four quarters.[14]

In late November of 2008, Citigroup's stock price fell below $4 a share.[15] The U.S. government rescued Citigroup Inc., agreeing to shoulder most losses on about $306 billion of the bank's risky assets. They also injected new capital, bolstering investor hopes that the government would support big banks as the economy sinks into recession.[16]

Since Pandit's announcement Citigroup ditched, among other things, 45 U.S. Citigroup branches in eight states, $12.5 billion in corporate buyout loans, the Diner's Club credit card franchise and New York investment banking base.[17] Citigroup also planned to close a call center and 49 Citifinancial branches in the United Kingdom.[18] They also considered selling its German consumer-banking arm Citibank Privatkunden, worth up to $6 billion euros[19]

Citigroup Inc. became a $40 stock for the first time since late 2007 in May of 2011. Citigroup, the heaviest-traded U.S. stock that accounted for 6.8 percent of total U.S. stock trading volume the previous year, drastically shrank its share count. The move instantly erased its single-digit stock price.[20]

In September of 2012, Morgan Stanley and Citigroup said they agreed to value their jointly-owned Morgan Stanley Smith Barney brokerage at $13.5 billion as part of an agreement for Morgan Stanley to buy all of Citigroup's 49 percent interest in the venture by June 2015.[21]

Key People

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CEO Vikram S. Pandit[22] (left) was appointed CEO in December 2007 after his predecessor, Charles Prince, resigned under pressure in the face of mounting subprime losses. Pandit had been passed over for the top job at Citi in 2005, but had been recalled in July 2007 to run its alternative investment division.

Since taking the top job, Pandit has begun a global executive shake-up aimed at bringing Citigroup's regional decision-making structure closer to its clients and reduce costs by centralizing more global functions.[23] He also recently announced a plan to sell off more than $400 billion worth of legacy assets in banking, securities and real estate.[24]

Richard D. Parsons, the former chairman of Time Warner, was named Citigroup's new chairman in February of 2009, succeeding Winfried F. W. Bischoff.[25]

References

  1. Unbreaking the Banks. Forbes.
  2. Citigroup's about-turn. The Economist.
  3. Citigroup To Hold Fast In China And India. Financial Times.
  4. Citigroup Posts Loss, Splits Up The Bank. AP.
  5. GM, Citigroup Removed from Dow. The Wall Street Journal.
  6. Financial stocks tumble on Moody's bank downgrades. MarketWatch.
  7. Citigroup Has Few Options After Pay Vote. New York Times.
  8. The Price Futures Group and Citi Announce Agreement to Introduce Price Futures Clients to CitiFX Pro. PRNewswire.
  9. Citigroup launches commodity trade finance business. Reuters.
  10. Citi's History. Citigroup.
  11. Top 20 banks in the world. Arun Uday.
  12. Citigroup's Weill admits flaw in Prince succession: report. Reuters.
  13. China Development Bank May Buy Citigroup Stake, Corriere Says. Bloomberg.
  14. Citi Cuts 52,000 More Jobs. Financial Times.
  15. Anatomy of a Meltdown. The New Yorker.
  16. Citigroup Gets Massive Government Bailout. Yahoo!News/Reuters.
  17. Blue-Light Specials at Citigroup as Its New Chief Plans a Revival. New York Times.
  18. Citigroup shuts UK call centre and 49 branches. The Times.
  19. Citigroup May Sell Its German Banking Business. Bloomberg.
  20. Citigroup Instantly Becomes a $40 Stock. WSJ.com.
  21. Morgan Stanley, Citi Value Brokerage at $13.5 Billion. CNBC.
  22. Vikram S. Pandit. Bloomberg.
  23. Citi Announces New Corporate Organizational Structure and Leadership Team. Citigroup.
  24. The Incredible Shrinking Citigroup. Motley Fool.
  25. Parsons Named Citigroup Chairman. The New York Times.