Citigroup

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Citigroup Inc. (NYSE: C) or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. 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.[3]
Citigroup Inc. has the world's largest financial services network in the world, spanning 140 countries with approximately 16,000 offices worldwide. The company currently employs approximately 260,000 staff around the world, which is down from 267,150 in 2010 according to Forbes.[4][5] It also holds over 200 million customer accounts in more than 140 countries. It is a primary dealer in US Treasury securities.[6] According to Forbes, at its height Citigroup used to be the largest company and bank in the world by total assets with 357,000 employees until the global financial crisis of 2008.[7] Today it is ranked 24th in terms of assets size compared to HSBC which now ranks as the largest company and bank by assets in the world as of 2011.[8]
Citigroup suffered huge losses during the global financial crisis of 2008 and was rescued in November 2008 in a massive stimulus package by the U.S. government.[9] Its largest shareholders include funds from the Middle East and Singapore.[10] According to the NYTimes, on February 23, 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 with a US Treasury credit line of $45 billion to prevent the bankruptcy of the largest bank in the world at the time. The government would also guarantee losses on more than $300 billion troubled assets and inject $20 billion immediately into the company. In exchange, the salary of the CEO is $1 per year and the highest salary of employees is restricted to $500,000 in cash and any amount above $500,000 must be paid with restricted stock that cannot be sold until the emergency government aid is repaid in full. The US government also gains control of half the seats in the Board of Directors, and the senior management is subjected to removal by the US government if there is poor performance. By December 2009, the US government stake was reduced to 27% majority stake from a 36% majority stake 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. Eventually by December 2010, Citigroup repaid the emergency aid in full and the US government received an additional $12 billion profit in selling its shares.[11][12][13][14][15] US Government restrictions on pay and oversight of the senior management are removed after the US government sold its remaining 27% stake as of December 2010. According to the WSJ, the government aid was provided to prevent a world-wide chaos and panic by the potential collapse of its Global Transactions Services division, which transports more than $3 trillion around the world each day for most of the Fortune 500 companies and over 80 national governments and 60 central banks around the world. According to the article, Mr. Pandit said if Citigroup was allowed to unravel into bankruptcy, "100 governments around the world would be trying to figure out how to pay their employees."[16][17][18][19][20]
Despite huge losses during the global financial crisis, Citigroup Inc. built up a enormous cash pile in the wake of the financial crisis with $247.6 billion in cash as of Q1 2011.[21] This was a result of selling its special assets placed in Citi Holdings, which were guaranteed from losses by the US Treasury while under federal majority ownership. Additionally, according to the Washington Post a special IRS tax exception given to Citi to allow the US Treasury to sell its shares at a profit while it still owned Citigroup shares, which eventually net $12 billion dollars. According to Treasury spokeswoman Nayyera Haq, "This (IRS tax) rule was designed to stop corporate raiders from using loss corporations to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks. And it was certainly not written to prevent the government from selling its shares for a profit."[22]
Citigroup is one of the Big Four banks in the United States, along with Bank of America, JP Morgan Chase and Wells Fargo.[23][24][25][26][27][28][29]
Contents [hide]
1 History
1.1 Citicorp
1.2 Travelers Group
1.3 Citicorp and Travelers merger
1.4 Travelers spin off
1.5 Subprime mortgage crisis
1.6 Federal assistance
1.7 Return to profitability, non-governmental shareholder ownership
2 Organization
2.1 Citicorp
2.2 Citi Holdings
3 Divisions
3.1 Global Consumer Group
3.2 Global Wealth Management
3.3 Citi Institutional Clients Group
4 Brands
4.1 Citi
4.2 Citibank
4.3 One Main Financial
4.4 CitiMortgage
4.5 Citi Capital Advisors
4.6 Citi Cards
4.7 Citi Private Bank
4.8 Citi Institutional Clients Group
4.9 Citi Investment Research
4.10 Citi Microfinance
4.11 Banamex
4.12 Woman & Co.
5 Real estate
6 Criticism
6.1 Raul Salinas and alleged money laundering
6.2 Conflicts of interest on investment research
6.3 Plutonomy memo
6.4 Enron, WorldCom and Global Crossing bankruptcies
6.5 Citigroup proprietary government bond trading scandal
6.6 2005 "Revisiting Plutonomy: The Rich Getting Richer" equity strategy public investment advisory
6.7 Regulatory action
6.8 Terra Securities scandal
6.9 Theft from customer accounts
6.10 Federal rescue 2008
6.11 Terra Firma Investments lawsuit
7 Public and government relations
7.1 Political donations
7.2 Lobbying and political advice
7.3 Public and governmental relations
8 Notes
9 References
10 External links
[edit]History

Citigroup was formed on October 9, 1998, following the $140 billion merger of Citicorp and Travelers Group to create the world's largest financial services organization.[3] 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.[30]
[edit]Citicorp
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.[31] 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.[31] 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 $1 billion in assets, and it became the largest commercial bank in the world in 1929.[31] As it grew, the bank became a leading innovator in financial services, becoming the first major U.S. bank to offer compound interest on savings (1921); unsecured personal loans (1928); customer checking accounts (1936) and the negotiable certificate of deposit (1961).[31]
The bank changed its name to The First National City Bank of New York in 1955, which was shortened in 1962 to First National City Bank on the 150th anniversary of the company's foundation.[31] The company organically entered the leasing and credit card sectors, and its introduction of US$ 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.[31]
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.[31] 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.[31]
[edit]Travelers Group
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.[3][32] 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.[32]


The corporate logo of Travelers Inc. (1993–1998) prior to merger with Citicorp.
In September 1992, Travelers Insurance, which had suffered from poor real estate investments[3] and sustained significant losses in the aftermath of Hurricane Andrew,[33] 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.[32] Meanwhile, the distinctive Travelers red umbrella logo, which was also acquired in the deal, was applied to all the businesses within the newly named organization. During this period, Travelers acquired Shearson Lehman – a retail brokerage and asset management firm that was headed by Weill until 1985[3] – and merged it with Smith Barney.[32]
[edit]Salomon Brothers
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.[32] This deal complemented Travelers/Smith Barney well as Salomon was focused on fixed-income and institutional clients whereas Smith Barney was strong in equities and retail. 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.
[edit]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.[3] 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.[3] 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".[3] 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.[34]
Joe Plumeri headed the integration of the consumer businesses of Travelers Group and Citicorp after the merger, and was appointed CEO of Citibank North America by Weill and Reed.[35][36] He oversaw its network of 450 retail branches.[36][37][38] J. Paul Newsome, an analyst with CIBC Oppenheimer, said: "He's not the spit-and-polish executive many people expected. He's rough on the edges. But Citibank knows the bank as an institution is in trouble-it can't get away anymore with passive selling-and Plumeri has all the passion to throw a glass of cold water on the bank."[39] It was conjectured that he might become a leading contender to run all of Citigroup when Weill and Reed stepped down, if he were to effect a big, noticeable victory at Citibank.[39] In that position, Plumeri boosted the unit's earnings from $108 million to $415 million in one year, an increase of nearly 400%.[40][41][42] He unexpectedly retired from Citibank, however, in January 2000.[43][44]
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.[45]
[edit]Travelers spin off


The current logo for Travelers Companies
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 11, 2001 attacks 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.
In spite of 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,[46] 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.[46]
[edit]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.[47][48] 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.[49] 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.[50]
[edit]Federal assistance
Over the past several decades, the United States government has engineered at least four different rescues of the institution now known as Citigroup.[51] During the most recent tax-payer funded rescue, by November 2008, Citigroup was insolvent, despite its receipt of $25 billion in federal TARP funds, 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. On the same day, Wall Street responded by dropping its stock market value to $6 billion, down from $300 billion two years prior.[52] 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.[53] The plan was approved late in the evening on November 23, 2008.[9] A joint statement by the US 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 held $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.[citation needed] [This paragraph requires a reference, particularly to the $20 billion figure quoted above. It is likely that this number is a severe underestimate of the value of CDO holdings held in off-balance sheet SIVs.]
On January 16, 2009, Citigroup announced its intention to reorganize itself into two operating units: Citicorp for its retail and institutional client business, and Citi Holdings for its brokerage and asset management.[54] Citigroup will continue to operate as a single company for the time being, but Citi Holdings managers will be tasked to "tak[e] advantage of value-enhancing disposition and combination opportunities as they emerge",[54] and eventual spin-offs or mergers involving either operating unit have not been ruled out.[55] 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 Travelers Co.[56]
[edit]Return to profitability, non-governmental shareholder ownership
In 2010, Citigroup achieved its first profitable year since 2007. It reported $10.6 billion in net profit, compared with a $1.6 billion loss in 2009.[57] Late in 2010, the government sold its remaining stock holding in the company, yielding an overall net profit to taxpayers of $12 billion.[58]
[edit]Organization

Citi is organized into two major segments – Citicorp and Citi Holdings.[59]
[edit]Citicorp
[edit]Regional Consumer Banking
Retail Banking, Local Commercial Banking and Citi Personal Wealth Management
North America, EMEA, Latin America and Asia; Residential real estate in North America
Citi-Branded Cards
North America, EMEA, Latin America and Asia
Latin America Asset Management
[edit]Institutional Clients Group
Securities and Banking
Investment banking
Debt and equity markets (including prime brokerage)
Lending
Private equity
Hedge funds
Real estate
Structured products
Private Bank
Equity and Fixed Income research
Transaction Services
Cash management
Trade services
Custody and fund services
Clearing services
Agency/trust
[edit]Citi Holdings
[edit]Brokerage and Asset Management
Largely includes investment in and associated earnings from Morgan Stanley Smith Barney joint venture
Retail alternative investments
[edit]Local Consumer Lending
North America
Consumer finance lending: residential and commercial real estate; auto, student and personal loans; and consumer branch lending
Retail partner cards
Certain international consumer lending (including Western Europe retail banking and cards)
[edit]Special Asset Pool
Certain institutional and consumer bank portfolios