Citigroup SWOT Analysis Report
Strengths
Strong market position
Citigroup is one of the world's largest financial services companies,
which gives it a competitive advantage and enables it to tap opportunities
across various geographic markets. It employs 374,000 people around the world,
and holds over 200m customer accounts in more than 100 countries. Citigroup’s
Global Consumer Group operates through a network of 8,527 branches,
approximately 20,000 ATMs and 530 Automated Lending Machines. In 2007,
according to Forbes Global 2000, it was the largest bank in the world with
total assets of $2.2 trillion.
Strong growth in international consumer business
Citigroup’s international consumer business, which consists of three sub
segments: Cards, Consumer Finance and Retail Banking, has shown strong
performance in the fiscal 2007. Its net interest revenues increased by 21% in
2007, driven by a 25% growth in average receivables and a 15% growth in average
deposits, including the impact of the acquisitions of GFU, Egg, and Grupo
Cuscatlan, and the integration of the CrediCard portfolio. Its non-interest
revenues increased by 40%, primarily due to a 33% increase in cards purchase
sales and 20% increase in investment product sales in 2007. In addition, during
2005–2007, its net interest revenues and non-interest revenues from
international consumer business has grown by 13.2% and 24.7%,
respectively. The growth in the international consumer market will help
it to marginalize the losses incurred in the US.
Weaknesses
Declining capital adequacy ratio
Declining investor confidence due to heavy losses and rating downgrade
is likely to have dilutive effect on the earnings of Citigroup, adversely
affecting the market sentiment and investor returns. The capital adequacy
ratios’ of Citigroup have been declining gradually, before plunging down in the
late 2007. The Tier 1 ratio of Citigroup declined from 8.9% in 2003 to 8.6% in
2006. Also, its capital adequacy ratio declined from 12% to 11.7% during the
same period. In fiscal 2007, the group’s exposure to subprime crisis led to
heavy write downs, the maximum in the industry till January 22, 2008. In the
last quarter of 2007, the group recorded $18bn write downs. At the end of the
fourth quarter of 2007, Citigroup had a Tier 1 ratio of 7.1% and total capital
ratio of 10.9%. Due to the poor capital adequacy ratio Moody's downgraded the
long-term ratings of Citigroup from Aa2 to Aa3 and lowered the Bank Financial
Strength Rating from A to B in later part of 2007.
Opportunities
Growing US credit card market
US Cards, Citigroup's arm in the US credit card sector, is one of the
largest providers of credit cards in North America, with more than 150m
customer accounts in the US, Canada and Puerto Rico. The US credit card market
value is forecasted to grow at CAGR of 5.7% during 2006–2011. In addition, the
number of credit cards in distribution is expected to grow at a CAGR of 1.8%
during the same period.
Growing global banking industry
The global commercial banking industry is forecast to grow at a CAGR of
4.8% between 2006 and 2011, to reach $44,090bn in 2011 and Citigroup could
leverage its recent acquisitions in 2007 to tap this growing market. In Central
America, it acquired Grupo Financiero Uno and Union De Bancos Cuscatlan,
gaining about 2.2m consumer customers and 45,000 corporate clients. Its
acquisition of Egg in early 2007 more than quadrupled its 800,000 UK credit
card base by adding Egg's approximately 2.9m credit card customers. In Taiwan,
it acquired BOOC, which added 1m customers, making it the 13th largest among
all domestic Taiwan banks by total assets.
Threats
Weak mortgage market in the US
The weak outlook for the sub-prime market will impact on Citigroup’s
consumer lending business in the US. Citigroup’s US consumer lending segments
provides home mortgages and home equity loans to prime and non-prime customers.
In fiscal 2006, the group’s interest revenues
from this business declined by 5%. The US mortgage industry has weakened in
recent quarters, owing to a slump in the US housing market. According to the US
Mortgage Bankers Association, new home sales were low at 0.7m at the end of the
third quarter of 2007, compared with almost 0.9m sales in first quarter of
2007. Moreover, the association forecasts, decline in all the segments of the residential
housing market till the third quarter of 2008.
