Citigroup (US)

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Citigroup controls one of the world's most widely spread financial brands, with a presence in more than 100 countries. It remains arguably the only truly global US bank. However it has only recently recovered from a five year crisis prompted by the 2008 credit crash. The group offers a huge range of services from traditional and investment banking to consumer finance, insurance, credit card services and asset management, and claims to operate more than 200m customer accounts across six continents. But its involvement in subprime investments, as well as exposure to high-risk mortgage and credit card customers, led to substantial losses during the late 2000s, and a complete reshuffle of the group's senior management team. By the beginning of 2009, Citi was a pale shadow of the giant it had been three years earlier. Newly appointed CEO Vikram Pandit launched a review of operations which ultimately led to the decision to transfer Citi's loss-ravaged consumer finance, brokerage and asset management businesses into a separate "bad banks" company, pending its sale or gradual liquidation. That unit is still being wound down, and the group's slow recovery led to the abrupt departure of Pandit himself during 2012. 

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 20th Apr 2017: Most US banks continued to enjoy a strong boost from soaring post-election markets, aided by weak comps from the year ago quarter. JP Morgan Chase and Citigroup both reported a 17% jump in profits for 1Q, well ahead of expectations. Investment trading and modest recent upticks in lending rates both contributed to growth. JP Morgan's revenues rose 6% and Citi's by almost 3%, also both ahead of consensus forecasts. Bank of America did even better, with profit soaring by 40% on a 7% lift in revenues, while Morgan Stanley enjoyed a spectacular near-71% jump in profits and a 25% surge in revenues. However, there are always losers as well as winners. News from Wells Fargo, still struggling to repair its reputation after the sales practises scandal, was less positive. Revenues dipped slightly and profits were flat, though still above expectations. The big surprise was Goldman Sachs, whose focus on investment banking should have guaranteed strong gains. In fact, results came in well below analysts' expectations, even if they were up strongly against a dismal year-ago quarter. Unlike rival banks, Goldman's revenues from bond and equity trading actually fell year-on-year. "We didn't navigate the quarter well," said newly appointed CFO Martin Chavez.

Adbrands Weekly Update 18th Jan 2017: Here come the 4Qs! As usual it was the US banks who kicked off the reporting season. Most appear to have enjoyed a strong boost from the extraordinary market rally which followed President-elect Trump's selection in early November. JP Morgan Chase reported a 24% jump in 4Q profits, driving up the full-year figure to a record $24.7bn, around 1% higher than the year before. Net income from investment banking for the year was up by more than a third. The biggest lift came from fixed income trading, offsetting a slight decline in the consumer retail banking division. Revenues edged up 2% to $95.7bn. Bank of America also enjoyed a lift, though analysts were disappointed that it wasn't as high as they'd hoped for in the final quarter. Nevertheless, a 13% uptick in net income for the year to $17.9bn was BofA's best result since 2006, on revenues up 1% to $83.7bn. Morgan Stanley and Goldman Sachs also reported stellar results. As expected, Wells Fargo reported a disappointing quarter, its first since the sales tactics scandal erupted in September. Full year net income slipped 4% to $21.94bn despite a 3% increase in revenues to $88.27bn. Despite a much-improved final quarter, Citigroup was even weaker for the year as a whole, with net income slumping 14% to $14.9bn and revenues down 8% at $69.9bn, as a result of higher provisions for credit losses and further eliminations of non-core businesses.

Adbrands Weekly Update 20th Oct 2016: The wind appeared to change direction for US banks during 3Q, helped along by the strengthening domestic economy and continuing troubles for several continental European rivals. After several quarters of weak or worse performance in their investment banking divisions, JPMorganChase, Citigroup and Bank of America all enjoyed a sharp uplift. Revenues from trading of fixed income, currencies and commodities (or FICC) jumped 48% for JP Morgan in 3Q, 39% for Bank of America and 35% for Citi. Wells Fargo also enjoyed a small contribution from FICC, where it only recently began to establish a presence following the purchase of parts of GE Money. This surge helped to offset another weak performance across the board in consumer banking, still hamstrung by low interest rates. JPMorganChase, Wells Fargo and Bank of America all reported modest year-on-year growth in combined revenues, though Citigroup was down slightly. Bank of America was the only one of the four to report a rise in net profits year-on-year, chalking up its best quarterly performance since 2008. Better still were the profits at Goldman Sachs and Morgan Stanley, banks with a much larger exposure to investment banking. Both reported a 60% leap on the bottom line, on revenues up 19% and 15% respectively.

Adbrands Weekly Update 21st Jul 2016: JPMorganChase kicked off the quarterly reporting season as usual last Thursday, with better than expected 2Q figures after the first quarter's sharp slowdown. An uplift in bond and currency trading and a rise in consumer loans fuelled modest revenue growth, but profits slipped against the year-ago quarter. It was a similar picture at Wells Fargo; Citi and Bank of America also reported dips in net profit against the year ago period, but revenues slipped as well. Even so, all four came in above analysts' more pessimistic expectations, reinforcing general confidence about the underlying strength of the US economy. The sector's biggest surprise came from Goldman Sachs, which reported a spectacular surge in performance after a very weak first quarter, and also for 1Q 2015 as a result of litigation provisions. A big increase in M&A activity helped to push earnings and revenues well ahead of expectations. There was a similar but less marked performance at Morgan Stanley.

Adbrands Weekly Update 21st April 2016: As expected, the collapse in investment banking activity since the start of the year weighed heavily on results from America's biggest banks, especially those with limited consumer banking operations. The biggest victim of the slump was Goldman Sachs, whose 1Q revenues plunged by 40% to their lowest level for a decade, while net profits more than halved. There was a similar picture at Morgan Stanley - revenues down 23% and net profits by 53%. JP Morgan Chase, Citigroup, Bank of America and especially Wells Fargo were, to varying degrees, able to offset those declines with solid performance from consumer banking. Wells Fargo has the smallest investment banking business of any of the big six, and consequently was the only one to report a net increase in group revenues for 1Q. Combined revenues from the big six fell 9% to $98bn, the steepest decline since 2011, while collective net income plunged 24% to $18bn. However, the negative performance had been clearly signposted by the banks during the quarter, and wasn't actually as bad as had been feared, with the result that most banking stocks actually rose in the wake of the announcements.


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Background

Free for all users | see full profile for current activities: This giant business was the creation of financial entrepreneur Sanford ("Sandy") Weill, who forged a merger in 1998 between his own Travelers Group and banking group Citicorp. However the corporate roots go back very much further. The City Bank of New York, later the National City Bank, was founded in 1812 by the first commissioner of the US Treasury, Colonel Samuel Osgood. Primarily a commercial bank, its main purpose was to support the city's fast-growing international trading community importing and exporting goods from around the world. In the early years of the 20th century the bank was the first to open branches worldwide, starting with London, Shanghai and other Asian centres in 1902, and in Latin America in 1904. By 1939 National City Bank had more than 100 branches outside the US. 

Back home, the bank moved into retail banking, becoming the first commercial bank to offer personal loans during the 1920s. In 1955, the business merged with First National New York to form First National City Bank. In 1974 the enlarged group rebranded itself as Citicorp, and also that decade jumped into the credit card market with wide-ranging agreements with Visa and MasterCard. By 1977, the group's banking subsidiary Citibank was the largest US issuer of credit cards, a position strengthened by the acquisition of Carte Blanche in 1978 (later sold) and Diners Club in 1981. That year Citicorp overtook BankAmerica as the country's biggest bank, rolling out its retail banking service with an extensive ATM network. It also became a major lender to the new generation of US property entrepreneurs including Donald Trump. Internationally the group was also becoming increasingly involved in developing markets making substantial loans in Latin America.

As the 1980s boom turned to bust at the end of the decade, Citicorp was suddenly left very exposed by its over-generous lending program, with a $10bn portfolio of potential bad debt. As a result, in 1991 the business reported a loss of almost $460m. Required by the Federal Reserve to strengthen its capital base to avoid the danger of collapse, Citicorp went looking for $1bn of further funding from its shareholders but initially found no takers. The share price plummeted. Eventually the business was effectively saved by Prince Alwaleed bin Talal, a little-known member of the Saudi royal family, who paid around $800m for a 15% stake at the very bottom of the market. Just two weeks later a group of international investors backed Prince Alwaleed with a further $600m of shares. Citicorp was saved, and its shares subsequently soared in value, earning Prince Alwaleed an enduring reputation as one of the world's smartest investors. (He remains Citigroup's single biggest shareholder with just under 5%).

Meanwhile chairman John Reed embarked on a major clear out of loss-making assets, selling a large chunk of the property portfolio as well as a number of non-core subsidiary businesses. The group returned quickly to profit. By 1997 Citicorp had re-established itself as one of the world's most respected financial institutions with a global network of almost 3,500 offices in 98 countries, and the biggest worldwide credit card business.

At this point, Sandy Weill entered the picture. Weill was an investment banker by training. During the late 1970s he built up brokerage firm Shearson Loeb Rhoades, selling it to American Express in 1981. He left Amex in 1985, uncomfortable with that company's blue-blood country club corporate lifestyle. Weill bought finance business Commercial Credit, which he then used as the vehicle for a series of further acquisitions including Primerica, a financial services business which also owned brokerage Smith Barney Harris Upham. In 1993, he rescued what was left of Shearson from American Express, and also snapped up troubled insurance giant Travelers.

Travelers was in fact North America's first accident insurer, founded in 1864 in Connecticut. Over the following years the business had added a variety of new insurance services, including the first US car insurance, life insurance and travel insurance. During the 20th century Travelers had diversified widely, not least into the over-inflated property market during the 1980s. By the end of that decade the business was in a similar position to that of Citicorp. Weill set about consolidating all of his various assets under the Travelers brand, selling off life insurance. He merged the group's property and casualty operations with those of rival Aetna to form Travelers Property Casualty and floated a 15% stake. In 1997 he acquired investment bank Salomon Brothers, merging it with Smith Barney to form Salomon Smith Barney.

Yet while the business was now huge, with revenues of $37bn in 1998, it was also almost entirely US-based. That year Weill approached Citigroup's John Reed with the proposal for a mammoth $70bn merger, the biggest ever at that time. This pooled Citicorp's international network and credit card business with Travelers' wide ranging insurance and brokerage businesses, the first US business to bring all those services under one umbrella. (In fact under the terms of the Glass-Steagall Act introduced after the Great Depression of the 1920s, the combination of banking and insurance was strictly speaking illegal. However, Weill was confident that he could use the benefits of the merger to argue for a change in the law. The Glass-Steagall Act was superseded in 1999 by new federal provisions allowing for greater diversification of financial services companies). The next two years were spent in a process of consolidation, as the two giants gradually combined, shedding more than 10,000 jobs in the process, including ultimately Reed's. Initially, the two men shared the title of co-chairman & CEO; but their working relationship quickly deteriorated. Former US Treasury secretary Robert Rubin was hired as an intermediary, and Reed eventually stepped down in 2000. That year the group also acquired the investment banking arm of UK-based Schroders, as well as consumer finance company Associates First Capital. Citigroup also bought back the remaining public shares in Travelers Property Casualty. 

In 2001 Citigroup acquired Banamex, one of the biggest banks in Mexico, took a 20% stake in troubled Japanese brokerage Nikko Securities, later Nikko Cordial, and also acquired the European American Bank from Dutch financial services giant ABN Amro. Also that year the group launched a global campaign designed to boost recognition of the Citigroup logo. Despite the group's mammoth size, the Citigroup brand has never enjoyed the proportionate brand strength or recognition of American Express, a company less than a third its size. As a result rumours periodically emerge that Sandy Weill might attempt a bid to acquire the smaller company before his ultimate departure from Citigroup. No such deal materialized, and Weill stepped down as CEO of Citigroup in 2003.

In 2002 the group once again floated a 20% stake in Travelers Property Casualty, raising $4bn in cash, and eventually spun off the remaining shares to shareholders. (Travelers agreed to merge with St Paul's Companies in 2004). In 2002 Citigroup acquired San Francisco's Golden State Bancorp for $5.8bn. However a few months later the group was dragged into investigations of failed groups Enron and WorldCom as a result of allegations that its brokerage arm Salomon Smith Barney had indirectly helped to manipulate those companies' share prices. Several lawsuits alleged that Citigroup's published research had deliberately painted too positive a picture of WorldCom's prospects in order to boost sales of a bond offer it had partially underwritten. As a result the group agreed to split the research and brokerage units into two separate businesses. Citigroup later agreed to pay $400m to settle accusations of conflicts of interest in its investment banking business. In 2004 it resolved a civil lawsuit over its involvement with WorldCom by agreeing a settlement of $2.65bn, of which more than $1bn was paid out to investors who lost money through the purchase of WorldCom shares. A year later a further $2bn was paid out to settle another case which claimed that Citigroup helped Enron engineer transactions to remove debts from its balance sheet. Yet another Enron case was finally settled in 2008 with a payout of $1.66bn.

Legal challenges piled on top of each other during the rest of 2004, caused in part at least by unorthodox behaviour by Citigroup employees. In summer 2004 the group upset rivals as well as regulators when it launched an unorthodox hit-and-run raid on the European government bond markets. Citigroup traders unloaded around E11bn of European government bonds in just two minutes, causing prices to plummet. Half an hour later they bought E4bn of the bonds at the much lower price, making a substantial profit. Faced with numerous complaints over the raid, the group issued an unprecedented apology. Regulators in the UK, Belgium, Portugal and Italy launched investigations soon afterwards. The UK regulator issued a $25m fine in 2005. 

Also in 2004, Citigroup faced several obstacles in Asia. Japanese regulators forced the group to close its private banking unit there in September for violation of banking laws designed to prohibit money-laundering, and Korean regulators subsequently announced their own investigation of the local Citibank unit. The group was also sued by investment manager Globalvest which alleged Citigroup was involved in a scheme to devalue that company's investments in two Brazilian telephone companies so that it could buy them more cheaply. Humbled by these several embarrassments, the group apologised for its aggressive tactics and promised to work harder to earn the respect of the international community. Yet in 2005, there was further embarrassment when the group was forced to admit that computer tapes containing personal financial records for almost 4m American customers were lost by delivery service UPS while in transit to a credit bureau.

Also in 2005, the group agreed to sell life insurer Travelers Life and Annuity to MetLife for around $11.5bn. That deal marked effectively the final unwinding of the mammoth merger between Citibank and Travelers which took place in 1998. Also in 2005, the group swapped its Asset Management unit in the US for the private client brokerage and capital markets businesses of Legg Mason. 

The growing problems which began to emerge in the 2007 led to a series of changes among the senior management team. Charles ("Chuck") Prince inherited the title of chairman-CEO from Sandy Weill in 2006, but resigned in November 2007 in the wake of the first substantial write-downs by Citigroup's investment banking division in connection with sub-prime mortgages. He was replaced as CEO at the end of the year by Vikram Pandit. Sir Win Bischoff, previously chairman of Citigroup Europe, was appointed as group chairman, but was eventually replaced in January 2009 by former Time Warner chief Richard Parsons. Former US Secretary of State Robert Rubin remained chairman of the executive committee through the tumult of 2007 and 2008, but also eventually tendered his resignation in early 2009. Sallie Krawcheck, previously chairman & CEO, Global Wealth Management, resigned abruptly in September 2008 after a disagreement on strategy. She was replaced by Michael Corbat. See full profile for current activities


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