Best-Practice Company Analysis- Citibank

Citibank overview

Citibank forms the consumer and corporate banking division of Citigroup, one of the largest financial services companies worldwide. Citigroup offers a wide range of financial products and services in 40 countries, including retail banking, investment banking, life insurance and private banking, targeting individual clients, small and large businesses, as well as both individual and institutional investors. Citigroup operates primarily in the United States, but it has an extensive network in Asia, Europe, Latin America, the Middle East and Africa. Citibank is the consumer and corporate banking subsidiary owned by Citigroup. The company has operations in over 100 countries, providing a range of financial solutions aimed at individual clients, small business, and larger corporations and institutions.

The United States represents the biggest market of Citigroup accounting for 64% of total net income in 2003. Asia accounted for 10%, Japan 4%, Mexico 8%, EMEA 10% and Latin America 4%.

The Citibank timeline

Citibank was created in 1812 as City Bank of New York. It began operating internationally in 1902, when it opened offices in Asia. The company started expansion in 1918 with the acquisition of International Banking Corporation, a U.S. overseas bank and later merged with the Farmers' Loan and Trust Company, to become the City Bank Farmers Trust Company. In 1955, the company changed its name to The First National City Bank of New York, and in 1962 this was shortened to the First National City Bank. Later on, in the 1970s, the bank yet again changed its name to Citibank,
N.A. (for National Association), while the First National City Corporation holding company became Citicorp, the parent of Citibank.

Further expansion of Citibank was marked by the acquisition of Diners Club in 1981, and in 1993 it merged the savings banks it acquired in 1980s under the Citibank umbrella. At the same time its global expansion continued, including the opening of a bank in Russia in 1994 and a branch in China, 1995, as well as in Vietnam.

In 1998 the bank merged with the insurance company Travellers Group, which was considered to be one of the most significant mergers in the financial services industry. This was mainly because it was one of the first cross industry mergers, where a bank would merge with an insurer in order to enhance its expertise and product offering. Following this, all Citicorp (parent of Citibank) and Travelers Group divisions merge to become Citigroup.

In 1999 Citibank bought Financiero Atlas, the second largest consumer finance company in Chile, and in 2000 Citibank became the first international bank to open a full-service branch in Israel. In 2002 Citibank announced it was to open retail-banking operations in Moscow, and in the same year announced a co-operation agreement with Galaxy Securities, China's leading brokerage. This was followed by a purchase of a minority stake in China-based Shanghai Pudong Development Bank in January 2003. 

The company also launched Citibanking in Malaysia in March 2004, and June 2004 saw the opening of a first dedicated CitiGold Wealth Management Center, designed to meet growing demand for wealth management services in Shanghai.

Financial analysis of Citigroup

In 2003, Citigroup's revenues increased 9% on 2002, reaching $77.4 billion, and the net income from continuing operations of $17.85 billion was up 33% from the prior year. For Global Consumer Group (Citibank is part of this division of Citigroup), net income totaled $4.2 billion in 2003, compared with $3.2 million in 2002.

•  Net interest margin for Citigroup has been relatively stable for the last few years. Itis average in comparison to other U.S. banks, meaning that in terms of profitabilityCitigroup is not doing exceptionally well, but it is maintaining a stable level.

•  The cost to income ratio for Citigroup has shown a decline in the recent years,indicating an improvement in the bank’s efficiency. It remains in line with theaverage level for U.S. banks, which was 60 in 2003.

• Return on equity ratio for Citigroup has been stable and higher than the U.S.banking average of 12, indicating that the company is relatively effective in generating profits.

SWOT Analysis of Citibank

 

Strengths

Thanks to the vast size of the company, Citigroup operates an extensive financial services network worldwide. The company enjoys a strong position in many countries, including Europe and Asia, which combined with a strong brand, means that Citigroup has a unique position in the retail banking market. Because of its size it is able to provide a complete range of products and services to its customers. 

Global reach through acquisitions: Citigroup has completed many acquisitions in its history, and it is aiming for more, at the moment targeting Germany and Asia. The company has made acquisitions one of its key methods in achieving successful growth, carefully selecting its acquisition targets. Being able to identify successful acquisition targets in a unique skill and Citigroup has mastered it well.
Financial strength: Citigroup is well protected against unfavorable economic conditions and turbulent times. This was especially evident during the 2002 recession, when many banks experienced significant financial losses, and Citigroup managed to maintain its profitability levels. Citibank enjoys the financial backing of Citigroup and is therefore able to approach new business opportunities with less anxiety than smaller retail banks, as well as receive more financial backing to fund its new business ideas.
Focus on growth markets: Citibank is known for its focus on emerging markets, for example by launching retail-banking operations in Moscow. It is also focusing on building strength in China.

Weaknesses

Weakened reputation: although Citigroup is one of the strongest financial companies worldwide, the investigation into the practices of its subsidiary Salomon Smith Barney in 2002 had a negative impact on Citigroup’s reputation. The investigation of Salomon Smith Barney stock fraud was based on findings that stock analysts misled investors about stocks’ performance. Another PR problem surfaced when Citigroup was accused of tricking their customers into taking out overly expensive loans.
Company’s size and reach: this can be a positive as well as a negative aspect, since the large size makes the company more difficult to manage and to control its corporate culture and values.

Opportunities

Continue with the expansion: Citigroup can maintain its strategy of expansion through acquisitions, and continue to grow. It is increasingly evident that Citigroup is looking to expand in Europe, and Germany seems to be the focus of its attentions at present.

Continue its strategy of innovation: the company is known for its good quality, userfriendly banking services and innovative approach. It is working on seizing the growing opportunity in the growing U.S. Hispanic population, for example, Citigroup launched a strategy to take advantage of the funds being forwarded from the United States back to Mexico.
Growing interest in emerging markets: China still can offer many opportunities, as well as the new EU member states, where growth is accelerating at a higher rate than in Western Europe.

Threats

Uncertain economic conditions and unfavorable legal battles: the U.S. economy, although having recovered from the 2002 recession and now looking positive, could still weaken. Citigroup’s reputation was weakened by the investigation into Salomon Smith Barney.

Risks in the emerging markets: although entering the growth markets of China or Brazil can be profitable for the company, there are risks involved, since these economies are often vulnerable when it comes to economic fluctuations. In May 2004, Citigroup announced that it would be forced to settle a class-action lawsuit filed by shareholders of the bankrupt telecoms company, WorldCom, for $2.65 billion. The company was sued by owners of WorldCom stock and bonds over its Salomon Smith
Barney brokerage unit's close relationship to WorldCom, which went bankrupt in 2002 after it was revealed that it had misled investors about their earnings and engaged in a massive accounting fraud.
Foreign exchange risk: Citibank, due to its global reach, is vulnerable to foreign exchange fluctuations and economic recessions in its markets. For example, in Argentina and Brazil Citigroup incurred losses, and also exposure to high-risk sectors, such as telecom and tech stocks, which resulted in Citigroup suffering significant losses in its equity portfolios.

Analysis of Citigroup in 2004

•  In April 2004 Citigroup announced the successful completion of its public tenderfor the outstanding shares of common stock of KorAm Bank Co., based in Seoul,Korea, which, together with shares acquired from an investor consortium, wouldgive Citigroup an overall shareholding of approximately 97.5% in KorAm Bank.

•  In May 2004 Citigroup settled class action litigation brought on behalf ofpurchasers of WorldCom securities. Under the terms of the settlement, Citigroupwould make a payment of $2.65 billion, or $1.64 billion after tax, to the settlementclass, which consists of all persons who purchased or otherwise acquired publiclytraded securities of WorldCom from April 29, 1999 through and including June 25,2002. Charles Prince, Chief Executive of Citigroup, said: “Citigroup is a growthcompany. It is important that we put this unfortunate chapter behind us so we can focus on our continuing prospects for growth. Today’s settlement is a milestone event in that effort. We are taking a leadership position in bringing to a close this difficult era in the history of our industry and our company”.

• Also in May 2004 Citigroup announced that it would acquire Principal ResidentialMortgage, one of the largest independent mortgage servicers in the United States.The transaction includes approximately $6.9 billion in assets and also includes $137 million of franchise premium.
•  In July 2004 Citigroup launched retail-banking services in St Petersburg, Russia'ssecond largest city, with the aim of launching a full suite of banking services, witha strong focus on lending products. Citigroup has over 200,000 retail clients inRussia, and has been present in the country since 1993.

•  In September 2004 Citigroup and the Association of Community Organizations forReform Now announced a landmark partnership that promotes homeownership in low- and moderate-income neighborhoods (especially in immigrant communities)increases the availability of affordable credit, and promotes financial education.The partnership was devised to reinforce Citigroup's position as a “key industryleader in responsible and innovative lending practices”.