399 Park Avenue
New York, New York 10043-0001
Telephone: (212) 559-1000
Toll Free: 800-285-3000
Fax: (212) 793-3946
Incorporated: 1812 as the City Bank of New York
Total Assets: $1.09 trillion (2002)
Stock Exchanges: New York Pacific Mexican
Ticker Symbol: C
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522291
Consumer Lending; 522220 Sales Financing; 522320 Financial Transactions
Processing, Reserve, and Clearing House Activities; 523110 Investment
Banking and Securities Dealing; 523120 Securities Brokerage; 523991
Trust, Fiduciary, and Custody Activities; 524113 Direct Life Insurance
Carriers; 525910 Open-End Investment Funds; 523920 Portfolio Management;
551111 Offices of Bank Holding Companies
We are an economic enterprise with ... a relentless focus on growth,
aiming to increase earnings by double digits on average; a global
orientation, but with deep local roots in every market where we operate;
a highly diversified base of earnings that enables us to prosper under
difficult market conditions; capital employed in higher-margin
businesses, each one of which is capable of profitable growth on a
stand-alone basis; financial strength protected by financial discipline,
enabling us to take risks commensurate with rewards to capture
attractive opportunities; a close watch on our overhead costs, but with
a willingness to invest prudently in our infrastructure--we spend money
like it's our own; a focus on technological innovation, seamlessly
delivering value to our customers across multiple platforms.
1812: Colonel Samuel Osgood takes over the New York branch of First Bank
of the United States and reorganizes it as City Bank of New York.
1865: The bank converts to a national charter, adopting the name
National City Bank of New York (NCB).
1897: NCB becomes the first major U.S. bank to open a foreign
1918: Foreign operations are enlarged through the purchase of
International Banking Corporation.
1919: NCB is the first U.S. bank to reach $1 billion in assets.
1933: Passage of the Glass-Steagall Act forces NCB to divest its
securities affiliate and greatly reduce its financial services
1955: NCB acquires the First National Bank of New York and changes its
name to First National City Bank of New York.
1961: The bank invents a new product: the negotiable certificate of
1962: The name of the bank is shortened to First National City Bank.
1965: The bank enters the credit card business.
1968: A one-bank holding company, First National City Corporation (FNCC),
is created and becomes the parent of the bank.
1974: The name of the holding company is changed to Citicorp.
1976: First National City Bank is renamed Citibank, N.A.
1987: Citicorp sets aside a $3 billion reserve fund as a provision
against potentially bad Third World loans and also posts a $1.2 billion
loss for the year.
1991: Restructuring and other charges result in an $885 million loss for
the third quarter, and company shareholders do not receive a quarterly
dividend for the first time since 1813.
1998: Citicorp merges with financial services giant Travelers Group Inc.
to form Citigroup Inc.
1999: Passage of the Financial Services Modernization Act, which
away with the regulation of Glass-Steagall, blesses the marriage of
Citicorp and Travelers after the fact, meaning the firm can engage in
both banking and insurance.
2000: Associates First Capital Corporation, a consumer finance company
specializing in subprime loans, is acquired and merged into
2001: Citigroup acquires Grupo Financiero Banamex, a leading retail bank
2002: Citigroup spins off Travelers Property Casualty; the company
becomes embroiled in scandals involving its equity research and
investment banking operations as well as loans to Enron Corporation.
2003: The corporation agrees to pay $400 million to settle the equity
research charges and $145.5 million to settle the Enron case.
The largest financial services company in the world, with assets in
excess of $1 trillion, Citigroup Inc. is a product of the 1998
megamerger of banking behemoth Citicorp and non-banking financial
services and insurance giant Travelers Group Inc. The company offers a
wide range of financial services to both consumers and businesses,
boasting around 200 million customer accounts in more than 100
countries. Retail banking operations include Citibank, which conducts
business internationally with more than 1,700 branches and nearly 5,200
ATMs; and Grupo Financiero Banamex, S.A. de C.V., one of the largest
banks in Mexico with a 1,400-branch network. Through Citi Cards and
other subsidiaries, Citigroup is the largest issuer of credit cards in
the world. Other major units include Primerica Financial Services, Inc.,
offering term life insurance and asset management to consumers; CitiFinancial, provider of consumer finance and community-based lending
services in North America, Europe, and Japan; The Travelers Life and
Annuity Company, specializing in life insurance and individual and group
annuity products; Citigroup Global Markets, Inc., a leading investment
bank and corporate advisory business; and Smith Barney, a major retail
brokerage house and equity research unit.
Citicorp had its origin in the First Bank of the United States, founded
in 1791. Colonel Samuel Osgood, the nation's first postmaster general
and treasury commissioner, took over the New York branch of the failing
First Bank and reorganized it as the City Bank of New York in 1812. Only
two days after the bank received its charter, on June 16, 1812, war was
declared with Britain. The war notwithstanding, the City Bank was for
all intents and purposes a private treasury for a group of merchants. It
conducted most of its business as a credit union and as a dealer in
cotton, sugar, metals, and coal, and later acted as a shipping agent.
Following the financial panic of 1837, the bank came under the control
of Moses Taylor, a merchant and industrialist who essentially turned it
into his own personal bank. Nonetheless, under Taylor, City Bank
established a comprehensive financial approach to business and adopted a
strategy of maintaining a high proportion of liquid assets. Elected
president of the bank in 1856, Taylor converted the bank's charter from
a state one to a national one on July 17, 1865, at the close of the
Civil War. Taking the name National City Bank of New York (NCB), the
bank was thereafter permitted to perform certain official duties on
behalf of the U.S. Treasury; it distributed the new uniform national
currency and served as an agent for government bond sales.
Taylor was the treasurer of the company that laid the first
transatlantic cable, which made international trade much more feasible.
It was at this early stage that NCB adopted the eight-letter wire code
address "Citibank." Taylor died in 1882 and was replaced as president by
his son-in-law, Percy R. Pyne. Pyne died nine years later and was
replaced by James Stillman.
Stillman believed that big businesses deserved a big bank capable of
providing numerous special services as a professional business partner.
After the panic of 1893, NCB, with assets of $29.7 million, emerged as
the largest bank in New York City, and the following year it became the
largest bank in the United States. It accomplished this mainly through
conservative banking practices, emphasizing low-risk lending in
well-secured projects. The company's reputation for safety spread,
attracting business from the largest U.S. corporations. The flood of new
business permitted NCB to expand; in 1897 it purchased the Third
National Bank of New York, bringing its assets to $113.8 million. That
same year it also became the first big U.S. bank to open a foreign
Far from retiring or diminishing his influence within NCB, Stillman
nonetheless began to prepare Frank A. Vanderlip to take over senior
management duties. Stillman and Vanderlip, who was elected president of
the bank in 1909, introduced many innovations in banking, including
travelers' checks and investment services through a separate but
affiliated subsidiary (federal laws prevented banks from engaging in
direct investment, but made no provision for subsidiaries).
Expansion in the Early 20th Century
Beginning in the late 1800s, many U.S. businessmen began to invest
heavily in agricultural and natural-resource projects in the relatively
underdeveloped nations of South and Central America. But government
regulations prevented federally chartered banks such as NCB from
conducting business out of foreign branches. Vanderlip worked long and
hard to change the government's policy and eventually won in 1913, when
Congress passed the Federal Reserve Act. NCB established a branch office
in Buenos Aires in 1914 and in 1915 gained an entire international
banking network from London to Singapore when it purchased a controlling
interest in the International Banking Corporation, which it gained
complete ownership of in 1918.
In 1919 Frank Vanderlip resigned in frustration over his inability to
secure a controlling interest in the company, and James A. Stillman, the
son of the previous Stillman, became president. NCB reached $1 billion
in assets, the first U.S. bank to do so. Charles E. Mitchell, Stillman's
successor in 1921, completed much of what Vanderlip had begun, creating
the nation's first full-service bank. Until this time national banks
catered almost exclusively to the needs of corporations and
institutions, while savings banks handled the needs of individuals. But
competition from other banks, and even corporate clients themselves,
forced commercial banks to look elsewhere for sources of growth. Sensing
an untapped wealth of business in personal banking, in 1921 NCB became
the first major bank to offer interest on savings accounts, which it
allowed individual customers to open with as little as a dollar. In 1928
Citibank began to offer personal consumer loans.
The bank also expanded during the 1920s, acquiring the Commercial
Exchange Bank and the Second National Bank in 1921, the People's Trust
Company of Brooklyn in 1926, and merging with the Farmers' Loan and
Trust Company in 1929. By the end of the decade, the "Citibank" was the
largest bank in the country, and through its affiliates, the National
City Company and the City Bank Farmers' Trust Company, it was also one
of the largest securities and trust firms.
Surviving the Great Depression
In October 1929 the stock market crash that led to the Great Depression
caused an immediate liquidity crisis in the banking industry. In the
ensuing months, thousands of banks were forced to close. NCB remained in
business, however, mainly by virtue of its size and organization. But in
1933, at the height of the Depression, Congress passed the Glass-Steagall
Act, which restricted the activities of banks by requiring the
separation of investment and commercial banking. NCB was compelled to
liquidate its securities affiliate and curtail its line of special
financial products, eliminating many of the gains the bank had made in
establishing itself as a flexible and competitive full-service bank.
James H. Perkins, who succeeded Mitchell as chairman in 1933, had the
difficult task of rebuilding the bank's reputation and its business (it
had fallen to number three). He instituted a defensive strategy,
pledging to keep all domestic and foreign branches open and to eliminate
as few staff members as possible. Perkins died in 1940, but his
defensive policies were continued by his successor, Gordon Rentschler.
As a major U.S. bank, NCB was in many ways a resource for the
government, which depended on private savings and bond sales to finance
World War II. The bank followed its defensive strategy throughout the
war, amassed a large government bond portfolio, and continued to stress
its relationship with corporate clients. Unlike its competitors, NCB was
so well placed in so many markets by the end of the war that it could
devote its energy to winning new clients rather than entering new
markets. Sixteen years after Black Tuesday, NCB had finally regained its
momentum in the banking industry.
Innovation in the Mid-20th Century
The bank changed direction after the death of Gordon Rentschler in 1948
by moving more aggressively into corporate lending. In 1955, with assets
of $6.8 billion, NCB acquired the First National Bank of New York and
changed its name to the First National City Bank of New York (FNCB), or
Citibank for short.
Citibank used its bond portfolio to finance its expansion in corporate
lending, selling off bonds to make new loans. By 1957, however, the bank
had just about depleted its bond reserve. Prevented by New Deal
legislation from expanding its business in private savings beyond New
York City, Citibank had nowhere to turn for more funding. The squeeze on
funds only became more acute until 1961, when the bank introduced a new
and ingenious product: the negotiable certificate of deposit.
The "CD," as it was called, gave large depositors higher returns on
their savings in exchange for restricted liquidity, and was intended to
win business from higher-interest government bonds and commercial paper.
The CD changed not only Citibank but the entire banking industry, which
soon followed suit in offering CDs. The CD gave Citibank a way to expand
its assets--but at the same time required it to streamline operations
and manage risk more efficiently, because it had to pay a higher rate of
interest to CD holders for the use of their funds.
The man behind the CD was not FNCB's president, George Moore, nor its
chairman, James Rockefeller, but Walter B. Wriston, a highly
unconventional vice-president. Wriston, a product of Wesleyan University
and the Fletcher School, had worked his way up through the company's
ranks since joining the bank in 1946. Having made a name for himself
with the CD, Wriston was later given responsibility for revamping the
company's management structure to eliminate the strains of Citibank's
expansion. Like Vanderlip more than 50 years before, Wriston advocated a
general decentralization of power to permit top executives to
concentrate on longer-term strategic considerations.
In 1962 the bank's official name was changed to First National City
Bank. Six years later, in an attempt to circumvent federal regulations
restricting a bank's activities, Citibank created a one-bank holding
company (a type of company the Bank Holding Company Act of 1956 had
overlooked) to own the bank but also engage in lines of business the
bank could not. The holding company was initially called First National
City Corporation (FNCC). Within six months, Bank of America, Chase
Manhattan, Manufacturers Hanover, Morgan Guaranty, and Chemical Bank had
also created holding companies.
FNCC made no secret of its intention to expand, both operationally and
geographically. In 1970 Congress--recognizing its error and concerned
that one-bank holding companies would become too powerful--revised the
Bank Holding Company Act of 1956 to prevent these companies from
diversifying into traditionally "non-banking" activities.
Wriston, who was promoted to president in 1967 and to chairman in 1970,
continued to press for the relaxation of banking laws. He oversaw
Citibank's entry into the credit card business, and later directed a
massive offer of Visa and MasterCharge cards to 26 million people across
the nation. This move greatly upset other banks that also issued the
cards, but succeeded in bringing Citibank millions of customers from
outside New York state. The bank failed, however, to properly assess the
risk involved. Of the five million people who responded to the offer,
enough later defaulted to cost the corporation an estimated $200
In an effort to gain wider consumer recognition, the holding company
formally adopted Citicorp as its legal name in 1974, and in 1976 First
National City Bank officially changed its name to Citibank, N.A. The "Citi"
prefix was later added to a number of generic product names: Citicorp
offered CitiCards, CitiOne unified statement accounts, and there were
CitiTeller automatic teller machines and a host of other Citi-offerings.
Falling Fortunes in the 1970s and 1980s
Citicorp performed very well during the early 1970s, weathering the
failure of the Penn Central railroad, the energy crisis, and a recession
without serious setback. In 1975, however, the company's fortunes fell
dramatically. Profits were erratic because of rapidly eroding economic
conditions in Third World countries. Citicorp, awash in petrodollars in
the 1970s, had lent heavily to these countries in the belief that they
would experience high turnover and faced the possibility of heavy
defaults resulting from poor growth rates. In addition, its Argentine
deposits were nationalized in 1973, its interests in Nigeria had to be
scaled back in 1976, and political agitation in Poland and Iran in 1979
precipitated unfavorable debt rescheduling in those countries.
Shareholders soon became concerned that Citicorp, which conducted
two-thirds of its business abroad, might face serious losses.
In its domestic operations, Citicorp suffered from a decision made
during the early 1970s to expand in low-yielding, consumer-banking
activities. Although New York usury laws placed a 12 percent ceiling on
consumer loans, Citibank bet that interest rates would drop, leaving
plenty of room to make a profit. But the oil shock following the
revolution in Iran sent interest rates soaring in the opposite
direction: Citicorp lost $450 million in 1980 alone. In addition,
Citibank purchased $3 billion in government bonds at 11 percent, in the
belief that interest rates would continue a decline begun during the
summer of 1980. Again, the opposite happened. Interest on the money
Citibank borrowed to purchase the bonds rose as high as 21 percent, and
the bank lost another $50 million or more.
One investment that did not go awry, however, was the company's decision
to invest $500 million on an elaborate automated teller network.
Installed throughout its branches by 1978, the ATMs permitted depositors
to withdraw money at any hour from hundreds of locations. Not only were
labor costs reduced drastically, but by being first again, Citibank
gained thousands of new customers attracted by the convenience of ATMs.
Citicorp raised the profitability of its commercial banking operations
by deemphasizing interest rate-based income in favor of income from fees
for services. Successful debt negotiations with developing countries cut
losses on debts that would otherwise have gone into default. In
addition, as a result of the 1967 Edge Act and special accommodations
made by various states, Citicorp, until then an international giant
known domestically only in New York state, was able to expand into
several states during the 1980s. Beginning with mortgages and its credit
card business, then savings and loans, and then banks, Citicorp
established a presence in 39 states and the District of Columbia.
Internationally, the company expanded its business into more than 90
countries. Some of this expansion was accomplished by purchasing
existing banks outright.
Wriston, after 14 years as chairman of Citicorp, retired in 1984,
shortly after the announcement that Citicorp would enter two new
businesses: insurance and information. He was succeeded by John S. Reed,
who had distinguished himself by returning the "individual" banking
division to profitability.
In May 1987 Citibank finally admitted that its Third World loans could
spell trouble and announced that it was setting aside a $3 billion
reserve fund. Losses for 1987 totaled $1.2 billion, but future earnings
were much more secure. Citibank's move forced its competitors to follow
suit, something few of them were able to do as easily--Bank of America,
for example, wound up selling assets to cover its reserve fund.
Reorganization and an Uneven Recovery in the Early to Mid-1990s
As Citicorp entered the 1990s, the United States' biggest bank faced
perhaps its most challenging period since its founding. A faltering
economy, coupled with unprofitable business loans--particularly in the
commercial real estate market--led to serious financial difficulties
that threatened the bank's existence. Year-end statistics for 1990
revealed a 20-year low for Citicorp's share price, which eventually fell
to $8. Citicorp's ratio of core capital to total assets stood at 3.26
percent, considerably lower than the minimum 4 percent that regulators
instituted as the standard requirement in 1992. The company was
operating on an expenses-to-revenue ratio of 70 percent, which prompted
immediate cost-cutting efforts in nearly all expendable (noncore)
business operations. Third quarter financial statements for 1991
reflected the impact of restructuring charges, asset write-downs, and
additions to reserves necessary for coverage of nonperforming loans:
Citicorp reported an $885 million loss. For the first time since 1813,
shareholders did not receive their 25 cents a share quarterly dividend.
Citicorp was in desperate need of reorganization.
Chairman John Reed described this period of great instability as "tough,
demanding," and a time of "turnaround." Widely viewed as a slow-moving
and analytical visionary, Reed appeared to many to be unable to maneuver
the ailing bank out of its mounting difficulties. Critics blamed
Citicorp's loan crisis on Reed's efforts during the mid-1980s to expand
in the international market and overextend credit to real estate
developers, including Donald Trump. Reed silenced his critics, however,
with the successful implementation of a two-year, five-point plan aimed
at improving capital strength and operating earnings to offset future,
but imminent, credit costs.
Of primary importance in the recovery process were cost-cutting
measures, growth constraint, and disciplined expenses and credit
quality--considered the control aspects of the banking industry. Staff
cuts for the two-year restructuring period resulted in the layoff of
more than 15,000 employees--including many in senior management
positions. Expenses also were trimmed as Citicorp consolidated its U.S.
mortgage service and insurance service operations, as well as its
Nearly half of Citicorp's third-quarter $885 million loss was affected
by the write-down of its $400 million investment in Quotron Systems,
Inc. Citicorp bought the stock quotation service for $680 million in
1986 at a time when the company was hoping to expand in the information
business. Since the acquisition, Quotron had been losing contracts with
major Wall Street firms such as Shearson Lehman and Merrill Lynch.
Quotron Systems could not compete with the updated technology of its
rival, Automatic Data Processing (ADP). In 1992 Citicorp sold two
Quotron divisions to ADP, the leader in the computer services market.
To help raise the projected $4 billion to $5 billion in capital under
the five-point plan, Citicorp sold its marginal operations in Austria,
Italy, and France; abandoned its efforts in the United Kingdom; and
offered $1.1 billion of preferred equity redemption cumulative stock (PERCS).
An important factor in the company's recapitalization was investment by
Saudi Prince al-Waleed bin Talal, who provided approximately $400
million of the $2.6 billion Citicorp raised in 1991 and 1992.
Although Citicorp relinquished some of its weaker holdings in Europe, it
continued to expand and improve operations in the Asia/Pacific region.
New branches were opened in Mexico, Brazil, Japan, Taiwan, South Korea,
and Australia. Such selective investing produced growth in earnings of
up to 30 percent. From September 1991 to September 1992, Citicorp
obtained $371 million in net income from consumer banking in the
developing world, exceeding earnings in the Japan, Europe, and North
America (JENA) unit of global finance.
Citicorp continued its commitment to international core business,
capital growth, and credit stability as it cautiously proceeded through
a recovery period. Circumstances called for conservative action in the
early 1990s to compensate for severe losses. In addition, Citicorp's
freedom to make loans was abridged in 1992 when it was placed under
regulatory supervision by the Federal Reserve Bank of New York.
Citicorp experienced losses in the value of its real estate holdings in
the early 1990s. The company decided to hold on to the nonperforming
property in the hopes an economic recovery would boost its value.
However, Citicorp sold approximately 60 percent of its holdings in 1993
at a loss. Two years later the other 40 percent had recovered its value.
In 1996 a Citibank employee was accused of helping Raul Salinas, brother
of Mexican President Carlos Salinas, sneak out of Mexico funds acquired
by illegal means. Further embarrassment from Mexico ensued for Citicorp
when its 1998 purchase of Banco Confia was linked to charges of
laundering drug money. Domestically, Citicorp was faced with rising
credit card write-offs as consumer bankruptcy increased in the late
1998: Citicorp + Travelers = Citigroup
In 1998 Citicorp took the lead in mega-banking mergers by joining forces
with Travelers Group Inc. Citigroup Inc., as the new entity was called,
boasted assets of $698 billion. The merger created the largest financial
services firm in the world, what the Economist called "a global
financial supermarket." With little overlap in service offerings and two
separate distribution networks, the two companies hoped to cross-sell to
each other's customers. John Reed, chairman of Citicorp, and Sanford
Weill, chairman of Travelers Group, agreed to run the new company
Despite the Glass-Steagall Act of 1933, which forbade banks from owning
insurers and insurers from owning banks, the merger was approved by the
Federal Reserve Board. Citigroup was required to sell off its insurance
businesses, however, a ruling it hoped would be overridden with new
legislation. It stalled the sales while lobbying Congress to modernize
the law. This tactic eventually succeeded with the passage of the
Financial Services Modernization Act (FSMA), which was signed into law
by President Bill Clinton in November 1999. With the longtime
protections of Glass-Steagall now overturned, Citigroup became one of
the first firms to qualify as a financial holding company under the FSMA,
enabling it to continue to operate in both banking and insurance.
Shares of Citibank and Travelers Group shot up at the announcement of
the merger, raising the combined value of the companies by $30 billion.
The optimism waned in the months following the merger as cross-selling
and creating economies of scale proved difficult to execute. With
Travelers still struggling to integrate its recent purchase of Salomon
Brothers into its own brokerage business (Smith Barney), the merger with
Citibank did not proceed smoothly. Rather than cross-selling, the
various subsidiaries and divisions moved to protect their own turf. One
exception was subsidiary Primerica Financial Services, which sold a
range of Travelers products to customers who took the company up on a
free financial analysis.
The rift between Citibank and Travelers Group became apparent in late
1998 when Jamie Dimon, likely successor to Citibank's joint chairmen,
Weill and Reed, abruptly quit. Employees divided along original company
lines, with Citibank staff cheering the news as a victory for their man
Reed over Weill, who had groomed Dimon to replace him at Travelers.
Salomon employees, who had never been fully integrated into Travelers
Group before the merger, showed their sympathy for Dimon with a standing
ovation on their trading floor. Dimon's loss left a void in the
company's leadership, especially because Weill and Reed were both
nearing retirement age.
In 1999 Citibank announced a project to simplify its service offerings
in an effort to reduce costs. As the bank had grown over the years, its
complexity had multiplied to such mind-boggling dimensions that it
needed 28 computer systems to handle its back-office records. As an
example, Citibank offered 150,000 different kinds of checking accounts
in 1999, with variations on how interest was calculated, what fees were
charged, and so on. The goal of the new project was to cut complexity by
75 percent and eliminate at least 26 computer systems.
Meanwhile, the larger integration of Citicorp and Travelers resulted in
restructuring charges of $1.3 billion and the elimination of more than
10,000 jobs from the workforce in 1998 and 1999. Continuing the branding
of Citigroup's units with the "Citi" prefix, Commercial Credit, a
consumer finance outfit that came from the Travelers side of the
corporate tree, was rechristened CitiFinancial during 1999. Citibank
Mortgage was similarly renamed CitiMortgage, Inc. in April 2000. The
corporation's boardroom gained a big name in October 1999 when former
Treasury Secretary Robert E. Rubin was named co-chairman. According to a
Business Week article, Rubin, who had once been the CEO of Goldman
Sachs, served as "a kind of roving corporate ambassador."
Major Acquisitions, Series of Scandals in the Early 2000s
In early 2000 Reed left the company, having lost a power struggle with
Weill. The latter was now sole CEO. That April, Citigroup spent $2.4
billion to take full control of Travelers Property Casualty Corp. In
November the company paid $27 billion for Dallas-based Associates First
Capital Corporation, a U.S.-based consumer finance firm specializing in
the subprime segment of the credit market (which includes higher risk
customers with prior credit problems or limited credit history); the
acquired firm also had a large presence in Japan. Most of Associates was
merged into CitiFinancial, which became the largest originator of home
equity loans in the United States. Unfortunately, just months after the
deal was consummated, the Federal Trade Commission (FTC) charged
Citigroup with predatory lending in relation to what regulators
considered to be deceptive marketing practices at Associates. In
September 2002 Citigroup reached an agreement with FTC to settle the
lawsuit whereby it would pay $240 million to the consumers affected by
the allegedly deceptive practices--representing one of the largest
consumer protection settlements in U.S. history.
The addition of Associates' Japanese consumer finance arm was part of a
broader international drive by Citigroup to penetrate mid-level banking
and finance markets abroad--Citibank having been content over the
decades concentrating on the upper end. In Europe during 2001, Citigroup
acquired the credit card unit of the U.K.-based Peoples Bank and
130-year-old Bank Handlowy, a retail bank in Poland with 80 branches.
The corporation also spent $2.2 billion in January 2001 to purchase
Schroders plc, a British investment bank. A further move into the Asian
market came in April 2001 when Citigroup paid $800 million for a 15
percent stake in the Fubon Group, which operated five financial services
companies in Taiwan; this was the largest-ever investment in that
country's financial sector by a foreign firm. Closer to home, Citigroup
completed its largest ever international acquisition in August 2001,
laying out $6.26 billion in cash and a like amount in stock for Grupo
Financiero Banamex-Accival (or "Banacci"), one of the largest banks in
Mexico, with more than 1,350 branches catering to middle class consumers
and small businesses along with an investment bank and brokerage serving
corporations and the more well-to-do. Citigroup's existing banking
operations in Mexico were incorporated with those acquired under the
Banamex name, creating the largest independent bank and brokerage in the
country. Citigroup gained a listing on the Mexican stock exchange as a
result of its takeover of Banamex, becoming the first foreign firm to do
Not neglecting the home market, Citigroup acquired the New York
state-chartered European American Bank (EAB) from Netherlands-based ABN
AMRO Bank N.V. for $1.6 billion in cash and the assumption of $350
million in EAB preferred stock. Completed in July 2001, the deal brought
Citigroup an enhanced presence in the metropolitan New York and Long
Island markets through EAB's 97 commercial banking branches, which were
subsequently rebranded under the Citibank name. In November 2002
Citigroup paid about $5.8 billion for Golden State Bancorp, the parent
of First Nationwide Mortgage and Cal Fed, the second largest thrift in
the United States. Gained in this acquisition were 325 retail branches
in California and Nevada, 1.5 million new banking customers, $25 billion
in deposits, and $20 billion in loans that were added to the
The purchase of Golden State was funded in part from the spinoff of
Travelers Property Casualty, a business that was considered more
volatile and expected to grow more slowly than other Citigroup
operations. In March 2002, 23.1 percent of the equity in the Travelers
unit was sold to the public through an initial public offering (IPO)
that raised more than $12 billion. Most of Citibank's remaining stake
was distributed to shareholders in August of that year. Additional 2002
initiatives included the reorganization of the company's operations into
a matrix-like structure encompassing nine product areas and six
geographic regions; the start-up of retail banking operations in both
China and Russia; and the formation of an alliance with Shanghai Pudong
Development Bank to enter the emerging credit card market in China.
For Citigroup, however, the year 2002 is likely to be best remembered as
the year of scandal. In addition to the Associates' deceptive marketing
scandal, a number of state and federal investigations were launched into
the questionable practices of the Salomon Smith Barney investment bank
and equity research unit. Salomon's influential telecommunications
analyst, Jack Grubman, was accused of hyping the stock of several firms
whose shares later tanked, the firms having returned the favor by
sending hundreds of millions of dollars in investment banking fees
Salomon's way. Grubman resigned in disgrace in August 2002, but not
before accepting a $33 million severance package. Weill himself was
caught up in the scandal, when allegations were raised that he had tried
to persuade Grubman to raise his rating on the stock of AT&T Corp., a
firm for which Weill served as a director. In April 2003 Citigroup's
Salomon (which by this time had dropped its scandal-associated name in
favor of Citigroup Global Markets, Inc.) was part of a landmark $1.4
billion settlement between ten Wall Street firms and the New York
Attorney General, the Securities and Exchange Commission (SEC), and
other regulatory agencies. Citigroup agreed to pay $400 million in fines
and payments--the largest amount paid by one firm. Grubman was fined $15
million and was barred from working in the securities industry for the
rest of his life. Weill (along with other senior officers) was barred
from speaking directly with Citigroup analysts on investment banking
matters. The SEC also mandated the separation of investment banking and
equity research operations--the building of a so-called Chinese wall--a
move that Citigroup had already taken in creating a new and independent
business unit called Smith Barney to be the corporation's retail
brokerage house and equity research unit.
Citigroup also was embroiled in the huge Enron Corporation scandal. Both
Citigroup and J.P. Morgan Chase & Co. were key Enron bankers and were
involved in funding off-the-books ventures that played a central role in
the alleged fraud that Enron executives had committed against the
company's shareholders. The banks loaned billions of dollars to the
Houston energy trading firm but structured the loans in such a way that
the added debt was hidden from shareholders and in fact appeared to
boost Enron's cash flow. In July 2003 Citigroup and J.P. Morgan reached
an agreement with the SEC and others whereby they would pay a total of
$305 million to settle the Enron case, with Citigroup's share being
Despite these settlements, Citigroup still faced private and
class-action lawsuits that had been filed on behalf of investors,
bondholders, and others in relation to these scandals. In anticipation
of the expected fines and anticipated settlement costs, the corporation
had set aside $1.5 billion as a litigation reserve in December 2002.
Remarkably, Citigroup still managed to report record net income of
$15.28 billion for the year. On the other hand, the scandals battered
the corporation's stock, which fell about 25 percent for the year--a
loss in market value of about $60 billion.
Although Citigroup's reputation had certainly been tarnished by the
firm's involvement in the wave of corporate scandals that rocked the
United States in the early 2000s, Weill tried to win the public
relations battle by adopting reform measures ahead of the regulators and
legislators. For example, Citigroup announced that at the beginning of
2003 it would begin expensing the cost of all stock options for
employees, management, and board members, a move that many observers
believed was necessary to provide a more accurate accounting of the
finances of a company. In July 2003 Weill made headlines through a
long-anticipated announcement: the tapping of a successor. Weill said
that he would step down as CEO at the end of 2003, and Charles O. Prince
was named to succeed him. Prince was a longtime Weill lieutenant who had
been named COO in 2001 and later was placed in charge of the
scandal-ridden investment bank. It also was announced that the head of
the Citigroup consumer banking operation, Robert B. Willumstad, would
succeed Prince as COO. Weill planned to stay on as chairman through
early 2006. Meantime, two other July 2003 announcements signaled that
Citigroup had weathered the scandal storm: the firm said that it would
increase its dividend by 75 percent and that it would acquire the huge
credit card business of Sears, Roebuck and Co. for about $3 billion.
Principal Subsidiaries: Citibank, N.A.; CitiFinancial; Citigroup Global
Markets, Inc.; The Citigroup Private Bank; Primerica Financial Services,
Inc.; The Travelers Life and Annuity Company; Grupo Financiero Banamex,
S.A. de C.V. (Mexico).
Principal Operating Units: Global Consumer Group; Global Corporate and
Investment Bank Group; Global Investment Management; Global Markets;
Principal Competitors: J.P. Morgan Chase & Co.; Bank of America
Corporation; Deutsche Bank AG; UBS AG; Merrill Lynch & Co., Inc.; The
Goldman Sachs Group, Inc.; Credit Suisse Group.
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pp. 79-80, 82.
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Kadlec, Daniel, "Citi Slicker," Time, October 7, 2002, pp. 67+.
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to the Top of the Financial World--and Then Nearly Lost It All, New
York: Simon & Schuster, 2003.
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First National City Bank, New York: Grossman, 1973.
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11, 1999, pp. 76-78+.
------, "Sandy Weill's Monster," Fortune, April 16, 2001, pp. 106+.
------, "Whatever It Takes," Fortune, November 25, 2002, pp. 74+.
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Worse," Business Week, October 28, 1991, pp. 124-25.
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York: McGraw-Hill, 1993.
Miller, Suzanne, "Is Sandy Losing Focus?," Banker, September 2002, pp.
Pacelle, Mitchell, and Laurie P. Cohen, "J.P. Morgan, Citigroup Will Pay
$305 Million to Settle Enron Case," Wall Street Journal, July 29, 2003,
pp. A1, A2.
Pacelle, Mitchell, and Monica Langley, "Citigroup's Weill Taps a Top
Aide As His Successor," Wall Street Journal, July 17, 2003, pp. A1, A6.
Prince, C.J., "The Dealmaker," Chief Executive (U.S.), July 2002, pp.
Silverman, Gary, et al., "Is This Marriage Working?," Business Week,
June 7, 1999, pp. 127-34.
Stone, Amey, and Mike Brewster, King of Capital: Sandy Weill and the
Making of Citigroup, New York: Wiley, 2002.
Thomas, Landon, Jr., "Citigroup's Chairman Is Barred from Direct Talks
with Analysts," New York Times, April 29, 2003, p. C1.
Timmons, Heather, et al., "Citi's Sleepless Nights: The Bank Faces
Lawsuits, Fines, and Closer Scrutiny," Business Week, August 5, 2002,
Timmons, Heather, Geri Smith, and Frederik Balfour, "Sandy Weill Wants
the World," Business Week, June 4, 2001, pp. 88, 90.
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Zweig, Phillip L., Wriston: Walter Wriston, Citibank, and the Rise and
Fall of American Financial Supremacy, New York: Crown, 1995.
Source: International Directory of Company Histories, Vol.59. St. James
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