Saturday, May 10, 2008


Type Public (NYSE: C)

Founded Baltimore, Maryland (1986)

Location New York, New York

Key people
Sanford I Weill, Chairman
Robert Rubin, Director
Charles Prince, CEO
Robert Willumstad, COO
Sallie Krawcheck, CFO
Industry Money Center Banks
Products Checking Accounts
Stock Brokerage
Investment Bank
Asset Based Lending
consumer finance

$108.276B USD ( 9.2%) (FY 2004)

Employees 275,000 (2004)


Citigroup Inc. (NYSE: C) is a major financial services company based in New York City. According to Forbes Global 2000, it is the world's biggest company and the most profitable financial services firm. Its formation was announced on April 7, 1998 through a merger of Citicorp and Travelers Group. It was the first US company to combine banking with insurance underwriting since the Great Depression. The company has over 275,000 employees and over 200 million customer accounts in more than 100 countries. It is a primary dealer in U.S. Treasury securities and its stock is a component of the Dow Jones Industrial Average.

Market share

Although it is one of the largest companies in the world, Citigroup only had a 5% global market share of its industry in 2003. The financial services sector, though the largest industry in terms of earnings, is also the most fragmented in terms of companies. Citigroup had a 10% share of the "capital markets & banking" (corporate and investment bank division) in 2003 ([1]). The Thomson Financial League Tables tracks the underwriting and M&A segment of that in more detail.

2003 global (except Retail Banking) market share:

Capital Mrkts. & Banking: 10%
Consumer Finance: 6
Private Client Services: 5
US Retail Banking: 4
Transaction Services: 2
Private Bank: 2


The history of the corporation now known as Citigroup is primarily the history of its Chairman, Sandy Weill, who spun off a consumer finance company known as Commercial Credit from Control Data Systems, and used it to begin assembling a gigantic financial conglomerate. After acquiring some small consumer finance companies, Commercial Credit acquired the much larger Primerica, and adopted the more famous Primerica name for the holding company.

Primerica was a conglomerate patterned after the modern General Electric by the famous mutual fund manager Gerry Tsai. As GE was doing at the time, Tsai was trying to position Primerica heavily into the financial services realm, acquiring A L Williams, a life insurance company that started the "buy term, and invest the difference" philosophy, and Smith Barney, a large stock broker. He bought Smith Barney at the height of a bull market, and the resulting stock market crash put a tremendous strain on the overall company, forcing him to sell. Tsai had inserted lucrative golden parachutes into his contract agreements because he knew he was going to have to sell, which made the deal more expensive than Commercial Credit was willing to pay. Weill was eventually convinced to go ahead with the deal because he would then be able to use Primerica's Gulfstream G4 jet, something which the Commercial Credit board of directors was not willing to pay for.

Upon acquiring the company in 1988, Weill spun off the non-financial businesses of the conglomerate, and attempted to institute the practice of "cross-selling" (also called "cross-servicing"), which he had used previously at American Express. Instead of the corporation owning a stock brokerage, insurance agency, and consumer finance company and letting them each run essentially separately, Weill was interested in each selling each others' products. For example, the insurance agents could sell Smith Barney mutual funds.

During this period Weill became interested in the Travelers Insurance company, which had come to Weill for a cash injection because of losses sustained during Hurricane Andrew. Weill also inserted management into that company to oversee operations and cost cutting. This eventually led to the acquisition of Travelers Insurance.

The Travelers Insurance acquisition added property and casualty, and life and annuities underwriting capabilities to the group. It also brought along the Travelers red umbrella logo, which Weill applied to all the businesses within the group. During this time Travelers acquired Shearson, which was a large stock brokerage Weill used to run. It then acquired Salomon Brothers, a famous investment bank. Weill attempted to negotiate a deal to merge with JP Morgan, but this was rejected because the JP Morgan CEO would have wanted to become CEO of the combined company. Weill was eventually successful at convincing John Reed, the CEO of Citicorp, to merge.


Citicorp was the descendant of City National Bank, founded in New York. It was one of the oldest Banks in the United States, and had the largest international branch presence of any United States headquartered bank. It specialized in large corporate banking, and was one of the largest banks in the United States at the time. The CEO at the time of the merger, John Reed, was instrumental in pushing for the acceptance and use of ATMs, and had seen the company through a financially bleak period when it had many problems with international loans defaulting. Reed had been trying to change the corporate culture of Citicorp, for example by hiring top executives from consumer product companies, not banks. Reed felt that the chance to merge with the Travelers Group would help effect change in this area.


The merger took place in 1998. This was illegal because the remaining provisions of the Glass-Steagall Act (legislation stemming from the United States' Great Depression era) did not allow banks to merge with insurance underwriters. Chuck Prince and his team of lawyers, studying the law, found that the Federal Reserve could grant the companies a two year trial period before they would have to divest the insurance underwriting business. The CEOs thought that they could change the law before the expiration date. The law was finally changed in 1999 when Glass-Steagall was invalidated by the passing of the Gramm-Leach-Bliley Financial Services Modernization Act. Ironically, Citigroup eventually did, of its own will, divest almost all its insurance underwriting businesses.

Post merger history

In order to convince Citicorp to merge, Weill proposed a structure of co-CEO's, consisting of himself and John Reed. This strategy was denounced immediately by many in the press and many research analysts as being unworkable. Former Treasury Secretary Robert Rubin was brought in as a moderating influence between Weill and Reed, but conflicts within the company eventually led to Reed being forced out (though Rubin remains). In addition, three co-CEO's (Jamie Dimon and Deryck Maughnan from Travelers, and Victor Menzes from Citicorp) were placed in charge of the corporate and investment bank, while two co-CEO's were placed in charge of the consumer group. This was dubbed "The Noah's ark school of management" by the press, and did not last long.

The Traveler's management attempted to implement its culture of cost cutting and cross selling into Citigroup. Citibank retail bankers were instructed to get securities and insurance licensed to sell mutual funds and annuities. US retail banking, however, never became a major focus for the company. Todd Thompson, CFO, explained that "the retail branches are mostly a deposit gathering operation used to fund other, higher return, areas". At the present time, its different consumer divisions are not as integrated as other financial institutions, with each one primarily running as a stand-alone monoline.

The corporate and investment had a more difficult time integrating. There was infighting between corporate bankers and investment bankers, as to who would be the primary relationship point of contact with a customer. Conflicts between the tri-CEO's (including a drunken skirmish between Dimon and Maugnan at a company retreat) led to the ousting of Jamie Dimon.

The company soon acquired Associates First Capital, the largest consumer finance company, and Banamex, the largest bank in Mexico. This was controversial in Mexico: at the time the press there were worried that Mexico's largest banks would all become "branch offices for foreign competitors". Bombs were placed in branches in violent protest.

The company spun off its Travelers Property and Casualty insurance underwriting business because it caused a drag on the Citigroup stock price due to its earnings being 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. Travelers Property Casualty Corporation, formally of Citigroup merged with The St. Paul Companies in 2004 forming The St. Paul Travelers Companies, Inc. Citigroup retained the life insurance and annuities underwriting business. However, by 2005 Citigroup decided to sell its life insurance underwriting division to MetLife for the same reasons. Citigroup still heavily sells all forms of insurance, but it no longer manufactures (i.e. underwrites) insurance. Citigroup does nevertheless retain Travelers' signature red umbrella logo as its own.

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.

The present 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 is 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.

Real estate

Its most famous office building is the Citigroup Center, a diagonal-roof skyscraper located in New York City's Midtown Manhattan, which despite popular belief is not 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. Smith Barney leases a building in the Tribeca neighborhood in Manhattan, the former headquarters of the Travelers Group and famous for its red umbrella sculpture.

In a truly well planned strategy, Citigroup's real estate in New York City, excluding the company's Smith Barney division and Wall Street trading division, lie all along New York City's 'E' and 'V' subway lines. This means that the Midtown buildings the company inhabits -- including 666 Fifth Avenue, 399 Park Avenue, 153 East 53rd street (Citigroup Center) and 1 Court Square (in Long Island City) -- are all one stop away from each other. In fact, every company building lies above or right across the street from an 'E' or 'V' line subway station.


Citigroup is divided into different divisions, each which contain many areas of business. The main divisions are Global Consumer, Global Corporate and Investment Bank, Private Client Services, and Global Investment management.

The Global Consumer Group is comprised of three sub-divisions, Cards (credit cards), Consumer Finance, and Retail Banking. The credit card business on average delivers about 40% of the profits of this group. Citigroup is the largest provider of credit cards in the world, a position long held by Citicorp, and increased by many acquisitions of card portfolios. It provides credit cards in many countries even where it doesn't have branches, and advertises directly on TV and by direct mail. The Consumer Finance Division (called Citifinancial) accounts for about 20% of the consumer group's profits. This division engages in the controversial practice of high interest rate lending to people with bad credit histories, called "loan sharking" or "predatory lending" by critics. Although this was the core of the corporation from which other divisions were acquired, most of the size, stores, and global reach of this division came from the takeover of Associates First Capital. Citifinancial is now the largest consumer finance company in the world.

The final division is the retail bank. This division consists of the normal retail branch system that banks are most known for. This goes by the brand name "Citibank". Citibank is about the fifth largest retail bank in the United States, and it has branches in countries throughout the world. The biggest part of retail banking however is Banamex, the largest bank in Mexico, which Citigroup owns. Overall the Global Consumer group contributes more than half of all the profits for Citigroup. If it were a separate company, it would still be in the top ten most profitable companies in the world.

The Global Corporate and Investment bank consists of two subdivisions, capital markets & banking, and global transaction services. This division essentially handles large corporate cash management, lending, and Investment Banking. Citigroup's investment bank is one of the largest, frequently topping many League Tables. It does not engage in as much proprietary trading (stock and bond speculation) as do other investment banks. Most of the largest scandals of Citigroup have been from this division.

Citigroup's Global Corporate and Investment Bank headquarters, TriBeCa, Manhattan (New York City).Investment Management is composed of businesses whose outcome depends strongly on the investment decisions of the managers of that business. This division is also probably organized to divide up the labor equally amongst executive management. Included in this group is Life Insurance & Annuities (Travelers Insurance), Asset Management (mutual funds), and the Private Bank. Life Insurance & Annuities goes under the brand name Travelers Insurance, and sells those services wholesale through insurance agents and brokers around the world. Asset Management mutual funds are also sold primarily wholesale, under the brand names Salomon Brothers and Smith Barney. The Private Bank is a high end boutique bank designed to distribute financial products to the very wealthy. Citigroup runs the Private Bank in many countries where it doesn't have normal bank branches.

The final division is called Private Client Services, a euphemism for a stock brokerage. This division is branded Smith Barney, and is the second largest stock broker in the world. It usually contributes however, only around 6% of Citigroup's profits. This division is now headed by Todd Thomson, who took the job in 2004 after resigning as CFO of Citigroup.


Citigroup has been involved in several scandals. Some of these are in specific businesses and are shared amongst other businesses within that industry, while some result from a conflict or collusion between different divisions of Citigroup. This second type of scandal have caused some to call into question the "financial supermarket" aspect of Citigroup.


The first major scandal of Citigroup was when it acquired the largest Consumer Finance company Associates First Capital in 2000. Associates was already under attack for what were called "predatory lending" practices, specifically the selling of single premium credit insurance. Upon being acquired the same attacks were turned towards Citigroup, who stopped the practice of selling the single premium credit insurance, and instituted other changes. In the end the company was fined for the former practices. The present combined consumer finance division, called CitiFinancial continues to share in the general controversy over consumer finance. In May 2004, CitiFinancial was fined $70 million by the U.S. Federal Reserve, for continued predatory lending (described in detail in Inner City Press' Weekly Citigroup Watch Report).

Biased research

The next major scandal was the accusation that Citigroup and other investment banks had struck secret deals with companies that said that the bank's stock research division would rate that company a "Buy" if it would do investment banking with that division. Implicated by that scandal was analyst Jack Grubman. This scandal led to some wondering if the financial services conglomerate concept would lead to conflicts of interest such as this. The premise of this question however, is considered by some to be somewhat flawed insofar as research companies have almost always been owned by investment banks, even before the repeal of Glass-Steagal. The firm eventually paid the largest fine in the "global settlement" with the state, resulting from conflicts of interest between research and investment banking at Salomon Smith Barney.

To help put investors at ease, Citigroup hired one of its most outspoken critics, Sallie Krawcheck, to head Smith Barney (now a pure stock brokerage division), which was separated from the investment bank within the corporate structure. It dropped the "Salomon" from the name, as this name historically denoted investment banking.


Primerica is now the brand name given to Citigroup's multi-level-marketing insurance and other financial services sales force. This division was formerly known as A L Williams. Critics call it a cult, or criticize its sales practices. Historically A L Williams was the major force in popularizing Term Life Insurance. See the Primerica article for more details.

Enron, and Parmalat

Citigroup was also accused of helping Enron and other companies hide their losses by loaning money to those companies in a special way that would reduce liabilities visible on the balance sheet. In May 2004 the company agreed to pay $2.65 billion, or $1.64 billion after tax, to settle a class action lawsuit brought on behalf of purchasers of WorldCom securities.

Japan Private Banking Scandal Citigroup removed three senior executives in the wake of a banking scandal in Japan. The scandal involved the Private Bank, the division that deals with very wealthy customers. It was alleged that the Private Bank failed to follow certain anti-money laundering procedures, that it used deceptive sales tactics, and that it assisted a customer in doing transactions which disrupted the financial markets or were fraudulent. This caused the Japanese regulators to shut down the Private Bank.

Deryck Maughan, a Citigroup vice chairman and head of Citigroup International, Thomas W. Jones, chairman and chief executive of the global investment management division, and Peter K. Scaturro, head of Citi's private bank, left the company. Maughan had been with Citigroup and its predecessor Salomon Brothers since 1983. Jones and Scaturro were both members of the Citigroup management committee. A memo from Chief Executive Charles Prince said that Citigroup President Robert B. Willumstad would take charge of the businesses run by the three departing executives.

Citigroup Proprietary Government Bond Trading Scandal Citigroup was critized by the European Financial Governmence institutes for disrupting the European bond market by rapidly selling รข‚¬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. An investigation is pending. Relatedly, the U.S. Federal Reserve refused to rule on Citigroup's application to acquire First American Bank in Texas, from September 2004 through March 2005 (described in detail in Inner City Press' Weekly Citigroup Watch Report).

Brasil Telecom and Brazilian Pension Funds Citigroup, a major shareholder of Brasil Telecom through an investment partnership in Brazil, was implicated in charges revolving around a highly controversial deal executed with pension funds of Brazilian state-owned companies, by which these funds would have a put option against them for a value deemed far above arm's-length market levels. After public outcry in Brazil, the deal was partly annulled by a federal court and the matter is being investigated by a panel of Brazilian congresspeople, with Citibank's president in Brazil Mr. Gustavo Marin having been heard in October 2005.

Improper Assessment of Late Fees Also in 2001 Citibank settled a lawsuit for improperly assessing late fees. The class action lawsuit was for 45 million dollars. Following this Citibank lobbied in Congress, to pass legislation that would limit class action lawsuits to 5 million dollars unless they were initiated on a federal level (Class Action Fairness Act of 2005). Many consumer advocate websites report that Citibank is still improperly assessing late fees.


  • Citibank, providing consumer banking products.
  • Citimortage, Mortgage Lender
  • Citifinancial, Consumer finance aka sub-prime lending
  • Diner's Club International, credit cards.
  • Grupo Financiero Banamex, largest Mexico bank
  • Primerica, engages in multi-level-marketing of financial services
  • SmithBarney, investment services, both retail full service brokerage, private client services, and formerly the brand name used for the Investment bank
  • Travelers Life & Annuity, insurance services.

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