Citigroup

Overview: After being severely battered in the financial crisis of 2007-08, Citigroup has gone from a major integrated financial services firm to one concentrating on these lines of business:

  • Retail Banking
  • Commercial Banking
  • Global Transaction Services

In 2009-10, Citigroup spun off or sold divisions in these functional areas, thereby raising capital to stabilize its core banking business:

  • Financial Advisory Services
  • Investment Management
  • Investment Banking
  • Securities Trading
  • Insurance

Citigroup made an offer to acquire only the banking operations of troubled Wachovia on September 29, 2008 for $2.1 billion plus FDIC guarantees against loan losses beyond a stated level. However, on October 3 Wells Fargo made a $15.1 billion bid for the entire firm, with no FDIC guarantees. The Wells Fargo deal passed its final regulatory hurdle on October 12, 2008, with approval by the Federal Reserve. By this time, after a week of steep stock market declines, the value of the all-stock Wells Fargo offer had fallen to $11.7 billion.

Job Openings: See this current list of job openings.

Size: As of December 31, 2010:

  • Global Employees = 260,000
  • North American Employees = 95,000
  • U.S. Branches = Over 1,000 in 13 states
  • Global Deposits = $845 billion
  • Global Clients = Over 200 million
  • Presence in over 100 countries

Morgan Stanley Smith Barney: On January 13, 2009, Citigroup announced that its Smith Barney unit would become part of a joint venture with Morgan Stanley, which later exercised an option to purchase it in entirety. The new entity is called Morgan Stanley Smith Barney. Follow the link for details.

Primerica: On March 31, 2010 Citigroup spun off its Primerica insurance unit in an initial public offering (IPO) of stock, while retaining a minority stake in the company.

Global Transaction Services: Citigroup’s Global Transaction Services unit, or GTS, was a little-known part of the company until profiled in a page one Wall Street Journal article on 1/11/10. While accounting for about 10% of Citigroup’s revenues, GTS contributed over half its profits in 2007 and 2009 (in 2009, when Citigroup posted a huge net loss, GTS was one of its few profitable parts).

GTS processes over $3 trillion of payments and fund transfers daily for corporations, governments and government agencies. Its activities account for about 40% of Citigroup’s $800 billion in deposits. The scope of GTS activities include, for example:

  • Around 90% of the transactions for the Federal Reserve Bank of New York, including those in 180 countries and 90 currencies
  • Social Security payments to expatriates
  • Payments to virtually all federal agencies
  • Cash management, payments, cross-border fund transfers and currency conversion for at least 80 national governments and 60 central banks
  • Unemployment benefits in Mexico, Poland and Maryland
  • Government pensions to French farmworkers
  • Pensions to British expatriates
  • Payroll services for U.N. peacekeepers in Darfur
  • Investment management technology and services for TIAA-CREF
  • Payments to employees and vendors of Mars, Inc. in 68 countries
  • Payments to vendors of food and services to U.S. forces in Iraq

Citigroup’s chairman asserts that, if GTS were to cease operations, 100 governments around the world would have problems paying their own employees.

Positives: The firm is a multinational giant with diverse lines of business and varied career opportunities. Its principal predecessor firm is long-time international banking leader Citibank, which acquired long-time Wall Street leaders Smith Barney and Salomon Brothers. The securities business of Citigroup operates under the Citi Smith Barney name.

After receiving an initial $25 billion equity infusion from the Treasury Department as part of the $700 billion financial rescue package (TARP), Citigroup got another $20 billion on November 24, 2008. Additionally, the FDIC absorbed some loan losses and helped to restructure nonperforming mortgage loans according to methodologies it used successfully with clients of failed IndyMac bank. All this helped to solidify Citigroup’s financial position.

Implications Unclear So Far: On October 16, 2012, CEO Vikram Pandit and company president John P. Havens suddenly resigned after a clash with the company’s board. Pandit, a former hedge fund manager (he sold his firm to Citigroup in 2007 for about $800 million, pocketing around $160 million in the process), had no prior experience in managing a large integrated financial services firm, and did not inspire confidence among employees, investors or clients. FDIC Chairman Sheila Bair had voiced opposition to his appointment precisely on the grounds that he lacked banking experience. In interviews with the press, he tended to be bland, unresponsive and lacking in clear strategic vision. The biggest surprise seems to be that he lasted as long as he did, although supporters point out that Citigroup was poised for trouble when he took charge, and that a different leader was unlikely to produce significantly better results. As of his resignation, the value of Citigroup’s stock price was only 11% of its value when Pandit became CEO in 2007. For his efforts, he was paid a cumulative $56 million, even after accepting only $1 per year for several years.

Negatives: Citigroup is yet another financial services firm that suffered losses from the mortgage and fixed income securities markets. Total employment contracted from 374,000 at the end of 2007 to 325,000 (a decline of 13%) in June 2008.

The spinoff of Smith Barney to Morgan Stanley resulted in the prices of Citigroup’s securities being battered in the immediate aftermath. Citigroup sold its most profitable division in what appeared to be a desperate short-term effort to raise cash. Additionally, the value of this joint venture has declined in the years after its formation, setting the stage for two further negative impacts, a major writedown on Citigroup’s books and reduced future payments from Morgan Stanley to acquire the stake still held by Citigroup. See the above link to Morgan Stanley Smith Barney for details.

In November 2011, Citigroup reportedly was developing plans to reduce its workforce in securities and banking by 900 (a 5% worldwide cut in this division). In December 2011, a formal announcement indicated that 4,500 employees would be laid off, across several lines of business.

In December 2012, new CEO Mike Corbat announced the elimination of 11,000 positions, out of 262,000 on staff as of September 30, 2012. Retail banking in various emerging markets will take the bulk of this hit, accounting for about 6,200 of the total. Branch closures in other countries, including the U.S., also will be part of the program, as well as reductions in back office operations, institutional sales and investment banking.

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