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Citigroup: Mini Case Analysis

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Our growth over the years has been extraordinary. Despite this empirical record, we are sometimes asked: Can you still grow? Are you too big to grow? Are you dependent on "big deals" for too much of your growth?

- Chuck Prince, CEO and Bob Willumstad, CFO

in 2003 Annual Report

Beth Markle put down the phone, and quickly jolted down several talking points on her legal pad for the next meeting. She had just spoken with the manager of a new Citibank retail branch in Brooklyn. As Citibank N.A.'s Director of Product and Marketing, Markle is responsible for deciding whether or not Citibank retail branches nationwide would begin offering free checking to all customers. Admiring the view of Lower Manhattan skyline from her office on the 37th floor of Citigroup Tower, she wondered what the banking landscape would look like 10 years from now.

As more and more financial institutions began to offer free checking, Citigroup - the most profitable company in the world in 2003 - felt more and more pressure to make a decision. Markle had mixed feelings about free checking. On one hand, it would attract more customers, but on the other hand, it could hurt Citibank's brand. "We do not want to just 'follow the herd'. We want to make our own decision based on what is right for us," Markle said, "However, it is time to make a decision."


In 2004, Citigroup was the largest U.S. bank holding company and a leading global financial services firm. Headquartered in New York, it had a presence in more than 100 countries across six continents, where its 275,000 employees managed 200 million customer accounts. Its services included credit cards, consumer finance, retail banking, corporate and investment banking, retail brokerage, life insurance and investment management. Major brand names under Citigroup's trademark red umbrella included Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, and Travelers Life and Annuity (see Exhibit 1).

Founded in 1812 with $2 million authorized capital and $800,000 paid-in capital, the City Bank of New York opened for business to serve a group of New York merchants. Over the next century, the bank continued to expand and diversify its product line and services, serving businesses as well as individuals. By 1929, it became the largest commercial bank in the world with over $1 billion in assets, with offices in Asia, Europe and India. In 1976, the bank changed its name to Citibank, N.A. (National Association), following its parent holding company's change to Citicorp two years ago to "better suit its global business".

Major Events

Citicorp-Travelers Merger

On October 8, 1996, Citicorp and the Travelers Group completed their $70 billion merger to form Citigroup, Inc. Citicorp was then the 2nd largest commercial bank and Travelers Group a leading global insurance and investment banking firm. Such alliance between a commercial bank and an insurance company or an investment bank was previously illegal to prevent a conflict of interests . The Citicorp-Travelers merger thus represented a new era of horizontal expansion. As an equal merger, the CEOs of the two companies - Sanford (Sandy) Weill of Citicorp and John Reed of Travelers - became co-CEOs. However, the configuration did not work out, and Reed resigned in February 2002.

Expansions and Acquisitions after the Merger

Under the leadership of Weill, Citigroup's acquisition spree began. In the first couple years, its drive for "a relentless focus on growth, aiming to increase earnings by double digits on average" was fulfilled by acquiring or becoming the major stakeholder in over a dozen international banks and brokerages, including Nikko Beans, a Japanese online brokerage firm, Bank Handlowy w Warszawie SA, a leading corporate bank in Poland, Mexico's "Banacci" (Grupo Financiero Banamex-Accival) and the majority of Diner's Club Europe.

It had three major acquisitions in the U.S. In July 2001, Citigroup acquired the full-service commercial bank European American Bank, adding 97 branches in the New York Area . Four months later, it acquired Golden State Bancorp, the parent company of First Nationwide Mortgage and Cal Fed, adding 352 branches and approximately 1.5 million new customers in key California and Nevada markets . Exhibit 2 shows the new market share and distribution in those areas. At the May 29th, 2003 Investor Presentation, Bob Willumstad, President of Global Consumer Group, announced the company's intentions to expand distribution by market share, geography and the Hispanic market . In January, 2004, it announced the acquisition of Washington Mutual Finance .

California Free Checking Trial

As a result of the acquisition of Golden State Bancorp, all Citibank branches in California began offering free checking. The decision was made because there was "no choice", according to Markle. California customers were used to free checking, and it would be impossible for Citibank to compete if they did not offer a comparable package. No affects were observed on Citibank branches that switched to free checking, and customers were reported to not notice a difference.

Enron Litigation

In 2002, former Salmon Smith Barney was under investigation for involvement in the Enron corporate fraud trial. On April 28, 2003, Citigroup announced that Citigroup Global Markets, Inc. (formerly Salomon Smith Barney) had reached an agreement with the New York Attorney General and regulators to resolve outstanding investigations into research, IPO allocation, and distribution practices. On July 28, 2003, it agreed to pay over $130 million in fines to the Securities and Exchange Commission and the New York State. As part of the agreement, Weill would not be charged and Citigroup was not liable for any wrongdoings, however, it had issued statements of regret to customers and investors.

New Leadership

On October 1, 2003, Charles O. ("Chuck") Prince succeeded Weill as Chief Executive Officer of Citigroup, and Robert B. Willumstad, President, added Chief Operating Officer to his role. Mr. Weill would remain Chairman of the Board until the 2006 annual shareholders meeting.




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