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Citigroup Inc.

Citigroup Inc.

399 Park Avenue
New York, New York 10043-0001
U.S.A.
Telephone: (212) 559-1000
Toll Free: (800) 285-3000
Fax: (212) 793-3946
Web site: http://www.citigroup.com

Public Company
Incorporated:
1812 as the City Bank of New York
Employees: 255,000
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

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.

Company Origins

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 department.

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.

Company Perspectives:

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 infrastructurewe spend money like it's our own; a focus on technological innovation, seamlessly delivering value to our customers across multiple platforms.

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 assetsbut 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 Congressrecognizing its error and concerned that one-bank holding companies would become too powerfulrevised 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 million.

Key Dates:

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 department.
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 offerings.
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 deposit (CD).
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 does 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 CitiFinancial.
2001:
Citigroup acquires Grupo Financiero Banamex, a leading retail bank in Mexico.
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.

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 easilyBank 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 loansparticularly in the commercial real estate marketled 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 qualityconsidered the control aspects of the banking industry. Staff cuts for the two-year restructuring period resulted in the layoff of more than 15,000 employeesincluding 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 telecommunication resources.

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 1990s.

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 together.

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 practicesrepresenting 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 abroadCitibank 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 so.

Not neglecting the home market, Citigroup acquired the New York statechartered 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 CitiMortgage portfolio.

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 paymentsthe 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 operationsthe building of a so-called Chinese walla 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 $145.5 million.

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 yeara 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; Citigroup International.

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.

Further Reading

Bianco, Anthony, and Heather Timmons, "Crisis at Citi," Business Week, September 6, 2002, pp. 3438, 40, 42.

Bianco, Anthony, et al., "Citi's New Act," Business Week, July 28, 2003, pp. 30+.

Citibank, Nader and the Facts, New York: Citibank, 1974.

"Citicorp Battling Back," Economist, April 25, 1992, pp. 84, 86.

"Citigroup: Fall Guy," Economist, November 7, 1998.

Cleveland, Harold van B., and Thomas F. Huertas, Citibank, 18121970, Cambridge, Mass.: Harvard University Press, 1985.

Creswell, Julie, "Banks on the Hot Seat," Fortune, September 2, 2002, pp. 7980, 82.

Egan, Jack, "The Fight to Stay on Top," U.S. News and World Report, December 30, 1991/January 6, 1992, pp. 7071.

"Financial Mergers: Complex Equations," Economist, June 5, 1999.

Hutchison, Robert A., Off the Books, New York: William Morrow and Company, 1986.

Kadlec, Daniel, "Citi Slicker," Time, October 7, 2002, pp. 67+.

Langley, Monica, Tearing Down the Walls: How Sandy Weill Fought His Way to the Top of the Financial Worldand Then Nearly Lost It All, New York: Simon & Schuster, 2003.

Lee, Peter, "Is Citi Back from the Dead?," Euromoney, December 1992, p. 30.

Leindorf, David, and Donald Etra, Ralph Nader's Study Group Report on First National City Bank, New York: Grossman, 1973.

Loomis, Carol J., "Citigroup: Scenes from a Merger," Fortune, January 11, 1999, pp. 7678+.

, "Sandy Weill's Monster," Fortune, April 16, 2001, pp. 106+.

, "Whatever It Takes," Fortune, November 25, 2002, pp. 74+.

Meeham, John, and William Glasgall, "Citi's Nightmares Just Keep Getting Worse," Business Week, October 28, 1991, pp. 12425.

Miller, Richard Bradford, Citicorp: The Story of a Bank in Crisis, New York: McGraw-Hill, 1993.

Miller, Suzanne, "Is Sandy Losing Focus?," Banker, September 2002, pp. 2426, 28.

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. 28+.

Silverman, Gary, et al., "Is This Marriage Working?," Business Week, June 7, 1999, pp. 12734.

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, pp. 4243.

Timmons, Heather, Geri Smith, and Frederik Balfour, "Sandy Weill Wants the World," Business Week, June 4, 2001, pp. 88, 90.

"The Trials of Megabanks," Economist, October 31, 1998.

"Watch Out for the Egos," Economist, April 11, 1998.

Zweig, Phillip L., Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy, New York: Crown, 1995.

Edna M. Hedblad

updates: Susan Windisch Brown,

David E. Salamie

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Citigroup Inc.

Citigroup Inc.

153 East 53rd Street
New York, New York 10043
U.S.A.
(212) 559-1000
Fax: (212) 527-1181
Web site: http://www.citi.com

Public Company
Incorporated: 1812 as the City Bank of New York
Employees: 173,700
Sales: $76.4 billion (1998)
Stock Exchanges: New York Midwest Pacific London Amsterdam Tokyo Zurich Geneva Basel Toronto Düsseldorf Frankfurt
Ticker Symbol: C
NAIC: 52211 Commercial Banking; 52212 Saving Institutions; 52221 Credit Card Issuing; 52222 Sales Financing; 52232 Financial Transactions Processing, Reserve, and Clearing House Activities; 52311 Investment Banking and Securities Dealing; 52312 Securities Brokerage; 523991 Trust, Fiduciary, and Custody Activities; 524113 Direct Life Insurance Carriers; 52591 Open-End Investment Funds; 551111 Offices of Bank Holding Companies

The largest financial services company in the world, Citigroup Inc. combines the international banking of Citibank and the numerous insurance products and non-banking financial services of Travelers Group Inc. Citibanks Visa and Mastercard credit cards and Travelers Banks credit cards together made Citigroup the number one credit card issuer in the world as of 1999. The companys other well-known subsidiaries include the brokerage Salomon Smith Barney, the insurer Travelers Life & Annuity, the life insurance and consumer lender Primerica Financial Services, and the personal and home equity lender Commercial Credit.

Company Origins

Citicorp has its origin in the First Bank of the United States, founded in 1791. Colonel Samuel Osgood, the nations 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 banks 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 companys 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 department.

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 governments 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, Stillmans successor in 1921, completed much of what Vanderlip had begun, creating the nations 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 Peoples 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 banks 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 to 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.

Company Perspectives:

The creation of Citigroup brings together organizations that are extraordinary in their individual capabilities and in the ways they enhance and complement each other. Together, we offer customers a range of quality products and services unmatched in the financial services industry. We serve a broader spectrum of customers, in more places and by more means of access and delivery, than any other financial organization.

With all of us working together to provide our customers with the best service and products, we are forming a model for the industrys future.

We are Citigroup.

The CD, as it was called, gave large depositors higher returns on their savings in return 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 assetsbut at the same time required it to streamline operations and manage risk more efficiently, since 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 FNCBs 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 companys ranks since joining the bank in 1946. Having made a name for himself with the CD, Wriston was later given responsibility for revamping the companys management structure to eliminate the strains of Citibanks 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 an attempt to circumvent federal regulations restricting a banks activities, in 1968 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. Within six months, Bank of America, Chase Manhattan, Manufacturers Hanover, Morgan Guaranty, and Chemical Bank had also created holding companies.

Citicorp made no secret of its intention to expand, both operationally and geographically. In 1970 Congressrecognizing its error and concerned that one-bank holding companies would become too powerfulrevised 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 Citibanks 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 Citicorp an estimated $200 million.

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. 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 companys fortunes fell dramatically. Profits were erratic due to 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 companys 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 which 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. Citibanks move forced its competitors to follow suit, something few of them were able to do as easilyBank of America, for example, wound up selling assets to cover its reserve fund.

Reorganization in the Early 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 loansparticularly in the commercial real estate marketled to serious financial difficulties which threatened the banks existence. Year-end statistics for 1990 revealed a 20-year low for Citicorps share price, which eventually fell to $8. Citicorps ratio of core capital to total assets stood at 3.26 percent, considerably lower than the minimum four percent which 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 (non-core) 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 Citicorps loan crisis on Reeds 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 qualityconsidered the control aspects of the banking industry. Staff cuts for the two-year restructuring period resulted in the layoff of more than 15,000 employeesincluding many in senior management positions. Expenses were also trimmed as Citicorp consolidated its U.S. mortgage service and insurance service operations, as well as its telecommunication resources.

Nearly half of Citicorps 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, Inc. 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 million to $5 million 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 companys 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 Asian/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.

Uneven Recovery in the 1990s

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, Citicorps freedom to make loans was abridged in 1992 when it was placed under regulatory supervision.

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, Banco Confia, was brought up on charges of laundering drug money. Domestically, Citicorp was faced with rising credit card write-offs as consumer bankruptcy increased in the late 1990s.

In 1998 Citicorp took the lead in mega-banking mergers by joining forces with Travelers Group Inc. Citigroup, 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 others customers. John Reed, chairman of Citicorp, and Sanford Weill, chairman of Travelers Group, agreed to run the new company together.

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. However, Citigroup was required to sell off its insurance businesses, a ruling it hoped would be overridden with new legislation. It stalled the sales while lobbying Congress to modernize the law.

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, 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 Citibanks 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. Dimons loss left a void in the companys 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.

Principal Subsidiaries

Citibank; Travelers Group Inc.; Citibank Mortgage, Inc.; Salomon Smith Barney Holdings Inc.; Travelers Life & Annuity; Travelers Property Casualty Corp. (83.4%); American Health and Life Insurance Co.; Primerica Bank; PFS Investments Inc.; Primerica Financial Services; Commercial Credit Company; Gulf Insurance Company; Citibank Credit Card Marketing; Citicorp Information Resources, Inc.; Citicorp Insurance Services Inc.; Citicorp N.A.; Citicorp Inc.; Citicorp Business Credit Inc.; Citicorp A.G. (Germany); Citicorp (Austria) A.G.; Citicorp Canada; Citicorp Credito, Financiamento e Investimento, S.A. (Brazil); Citicorp Espana S.A. (Spain); Citicorp Copenhagen (Denmark); Citicorp International Limited (Hong Kong).

Principal Divisions

SSB Citi Asset Management Planning Group; Global Consumer Planning Group; Global Corporate and Investment Bank Planning Group.

Further Reading

Citibank, Nader and the Facts, New York: Citibank, 1974.

Citicorp Battling Back, Economist, April 25, 1992, pp. 84, 86.

Citigroup: Fall Guy, Economist, November 7, 1998. Cleveland, Harold van B., and Thomas F. Huertas, Citibank 18121970, Cambridge, Mass.: Harvard University Press, 1985.

Egan, Jack, The Fight to Stay on Top, U.S. News & World Report, December 30, 1991/January 6, 1992, pp. 7071.

Financial Mergers: Complex Equations, Economist, June 5, 1999.

Hutchison, Robert A., Off the Books, New York: William Morrow and Company, 1986.

Lee, Peter, Is Citi Back from the Dead?, Euromoney, December 1992, p. 30.

Leindorf, David, and Donald Etra, Ralph Naders Study Group Report on First National City Bank, New York: Grossman, 1973.

Meeham, John, and William Glasgall, Citis Nightmares Just Keep Getting Worse, Business Week, October 28, 1991, pp. 12425.

The Trials of Megabanks, Economist, October 31, 1998.

Watch out for the Egos, Economist, April 11, 1998.

Edna M. Hedblad

updated by Susan Windisch Brown

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Citicorp

Citicorp

399 Park Avenue
New York, New York 10043
U.S.A.
(212) 559-1000

Public Company
Incorporated: 1812 as the City Bank of New York
Employees: 89,000
Assets: $213.70 billion
Stock Exchanges: New York Midwest Pacific London Amsterdam Tokyo Zurich Geneva Basel Toronto Dusseldorf Frankfurt
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6035 Federal Savings Institutions

Citicorp, a holding company and the parent of Citibank, is one of the largest financial companies in the world. Often compared to the Bank of America, Citicorp has consistently out-performed Bank of America and other financial institutions and is regarded as the leading bank in the United States. At a time when the U.S. budget deficit has led to the transfer of enormous amounts of American capital to foreign banksparticularly Japanese banksCiticorp has remained highly competitive, even in international markets.

Citicorp has its origin in the First Bank of the United States, founded in 1791. Colonel Samuel Osgood, the nations 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 banks 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 companys reputation for safety spread, attracting business from Americas largest 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 American bank to open a foreign department.

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).

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 governments 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 American bank to do so. Charles E. Mitchell, Stillmans successor in 1921, completed much of what Vanderlip had begun, creating the nations 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. And 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 Peoples 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.

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 banks 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 American 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.

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 to 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 return 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 assetsbut at the same time required it to streamline operations and manage risk more efficiently, since 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 FNCBs 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 companys ranks since joining the bank in 1946. Having made a name for himself with the CD, Wriston was later given responsibility for revamping the companys management structure to eliminate the strains of Citibanks 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 an attempt to circumvent federal regulations restricting a banks activities, in 1968 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. Within six months, Bank of America, Chase Manhattan, Manufacturers Hanover, Morgan Guaranty, and Chemical Bank had also created holding companies.

Citicorp made no secret of its intention to expand, both operationally and geographically. In 1970 Congressrecognizing its error and concerned that one-bank holding companies would become too powerfulrevised 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 Citibanks 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 Citicorp an estimated $200 million.

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. The Citi prefix was later added to a number of generic product names, Citicorp offered CitiCards, CitiOne unified statement accounts, CitiTeller automatic teller machines, and a host of other Citi-things.

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 companys fortunes fell dramatically. Profits were erratic due to 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 growth 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 companys 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 de-emphasizing interest-rate-based income in favor of income from fees for services. Successful debt negotiations with developing countries cut losses on debts which would otherwise have gone into default. And 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. Citibanks move forced its competitors to follow suit, something few of them were able to do as easilyBank of America, for example, wound up selling assets to cover its reserve fund.

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 marketled to serious financial difficulties which threatened the banks existence. Year end statistics for 1990 revealed a twenty-year low for Citicorps share price, which eventually fell to $8. Citicorps ratio of core capital to total assets stood at 3.26 percent, considerably lower than the minimum four percent which 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 (non-core) 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 non-performing 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 Citicorps loan crisis on Reeds efforts during the mid 1980s to expand in the international market and overextend credit to real estate developers like 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 qualityconsidered 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 were also trimmed as Citicorp consolidated its U.S. mortgage service and insurance service operations, as well as its telecommunication resources.

Nearly half of Citicorps 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, Inc., could not compete with the updated technology of its rival, Automatic Da, a Processing (ADP). In 1992 Citicorp sold two Quotron divisions to ADP, the leader in the computer services market.

To help raise the projected $4 to $5 million 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).

Although Citicorp relinquished some if its weaker holdings in Europe, it continued to expand and improve operations in the Asian/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 continues its commitment to international core business, capital growth, and credit stability as it cautiously proceeds through a successful recovery period. Though circumstances called for conservative action in the early 1990s to compensate for severe losses, Citicorp remains a pioneer in the banking industry. No other bank is attempting to run a worldwide consumer-banking business. Citibanking in Europe affords customers with the only multi-country interconnected retail bank, offering Citicard Banking Centers that accept deposits, permit account transfers, and dispense casha package of services unique to European Automatic Teller Machines. Citibank originated the use of credit cards featuring revolving credit, photo identification, and risk-adjusted pricing. A newly developed credit card program linked with Ford Motor Co. rewards cardholders with credit toward the purchase of a new automobile.

Citicorps innovative approach and aggressive global marketing strategy, in addition to a reorganization that emphasized revenue over profit, have enabled it to maintain the number one ranking among bank holding companies. It appears that this trimmer, more focused, and more disciplined consumer bank will remain highly competitive in the future.

Principal Subsidiaries

AMBAC; Citicorp Diners Club; Quotron Systems; Transaction Technology, Inc.; CapMac (Capital Markets Assurance Corp.); KKB Bank A.G.; Citicorp Mortgage Inc.; Citibank Canada; Citibank Espana; Citibank Italia; Citibank Belgium; Citicorp International Trading Co.; Citibank (Maryland), N.A.; Citibank (Nevada), N.A.; Citibank (South Dakota), N.A.; Citibank (Florida), N.A.; Citibank; (New York State) Citibank; (Arizona) Citibank; (Utah) Citibank (Maine), N.A.; Citibank Delaware.

Further Reading

Leindorf, David and Donald Etra, Ralph Naders Study Group Report on First National City Bank, New York: Grossman, 1973.

Citibank, Nader and the Facts, New York: Citibank, 1974.

Citicorp Battling Back, The Economist, April 25, 1992, pp. 84, 86.

Cleveland, Harold van B. and Thomas F. Huertas, Citibank 18121970, Cambridge, Massachusetts: Harvard University Press, 1985.

Egan, Jack, The Fight to Stay on Top, U.S. News & World Report, December 30, 1991/January 6, 1992, pp. 7071.

Hutchison, Robert A., Off the Books, New York: William Morrow and Company, 1986.

Lee, Peter, Is Citi Back from the Dead?, Euromoney, December 1992, p. 30.

Meeham, John and William Glasgall, Citis Nightmares Just Keep Getting Worse, Business Week, October 28, 1991, pp. 12425.

updated by Edna M. Hedblad

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Citicorp

Citicorp

399 Park Avenue
New York, NY 10043
U.S.A.
(212) 559-1000

Public Company
Incorporated:
1812 as the City Bank of New York
Employees: 89,000
Assets: $207.67 billion
Stock Index: New York Midwest Pacific London
Amsterdam Tokyo Zurich Geneva Basel Toronto
Düsseldorf Frankfurt

Citicorp, a holding company and the parent of Citibank, is one of the largest financial companies in the world. Often compared to the Bank of America, Citicorp has consistently outperformed Bank of America and others, and is regarded as Americas leading bank. At a time when the U.S. budget deficit has led to the transfer of enormous amounts of American capital to foreign banksparticularly Japanese onesCiticorp has remained highly competitive, even in international markets.

A bank almost as old as the country itself, Citicorp has its origin in the First Bank of the United States, founded in 1791. Colonel Samuel Osgood, the nations 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 banks 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. He was replaced as president by his son-in-law, Percy R. Pyne. Pyne, who never distinguished himself as a visionary leader, died nine years later, and was himself replaced by James Stillman, who became president in 1891.

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 $29.7 million, emerged as the largest bank in New York City and the following year, 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 companys reputation for safety spread, attracting business from Americas largest 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 in 1898. Also in 1897 it became the first big American bank to open a foreign department.

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).

Beginning in the late 1800s, many American 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 governments 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 (it acquired it completely 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. NCBs assets reached $1 billion, the first American bank to do so. Charles E. Mitchell, Stillmans successor in 1921, completed much of what Vanderlip had begun, creating the nations first fullservice 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. And 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, and the Peoples 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, was also one of the largest securities and trust firms.

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 banks 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 as possible. Perkins died in 1940, but his defensive policies were continued by his successor, Gordon Rentschler.

As a major American 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.

The bank changed direction after the death of Gordon Rentschler, in 1948, moving 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 to 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 return for restricted liquidity, and was intended to win business from higherinterest 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 assetsbut at the same time required it to streamline operations and manage risk more efficiently, since 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 FNCBs president, George Moore, nor its chairman, James Rockefeller, but Walter B. Wriston, a bright and highly unconventional vice president. Wriston, a product of Wesleyan University and the Fletcher School, had worked himself through the companys ranks since joining the bank in 1946. Having made a name for himself with the CD, Wriston was later given responsibility for revamping the companys management structure to eliminate the strains of Citibanks expansion. Like Vanderlip more than 50 years before him, Wriston advocated a general decentralization of power to permit top executives to concentrate on longer-term strategic considerations.

In an attempt to circumvent federal regulations restricting a banks activities, in 1968 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. Within six months, Bank of America, Chase Manhattan, Manufacturers Hanover, Morgan Guaranty, and Chemical Bank had also created holding companies.

Citicorp made no secret of its intention to expandboth 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 Citibanks entry into the Crédit 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 Citicorp an estimated $200 million.

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. The Citi prefix was later added to a number of generic product names; Citicorp offered CitiCards, CitiOne unified statement accounts, CitiTeller automatic teller machines, and a host of other Citi-things.

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 companys fortunes fell dramatically. Profits were erratic due to 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 growth 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 lowyielding consumer-banking activities. Although New York usury laws placed a 12% 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 $150 million in 1980 alone. To add insult to injury, Citibank purchased $3 billion in government bonds at 11%, 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%, and the bank lost another $50 million or more.

One investment that didnt go awry, however, was the companys 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 any one of hundreds of automatic tellers. 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 de-emphasizing interest-rate-based income in favor of income from fees for services. Successful debt negotiations with developing countries cut losses on debts which would otherwise have gone into default. And 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 Crédit card business, then savings and loans, and then banks, Citicorp established a presence in 39 states and the District of Columbia. And 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. Citibanks move forced its competitors to follow suit, something few of them were able to do as easilyBank of America, for example, wound up selling assets to cover its reserve fund.

Under Reed, Citicorp continues to dominate the banking industry not just in the United States but around the world. Although it has been passed by several Japanese banks in total assets, Citicorps more than 3,000 offices worldwide give it a presence matched by none. Surprisingly, the banks size has not created a stodgy, slow-reacting behemoth; Citibank has been able to preserve its slightly nontraditional approach to banking and remain the pioneer of the industry it continues to dominate.

Principal Subsidiaries

AMBAC; Citicorp Diners Club; Quotron Systems; Transaction Technology, Inc.; CapMac (Capital Markets Assurance Corp.); KKB Bank A.G.; Citicorp Mortgage Inc.; Citibank Canada; Citibank España; Citibank Italia; Citibank Belgium; Citicorp International Trading Co.; Citibank (Maryland), N.A.; Citibank (Nevada), N.A.; Citibank (South Dakota), N.A.; Citibank (Florida), N.A.; Citibank (New York State); Citibank (Arizona); Citibank (Utah); Citibank (Maine), N.A.; Citibank Delaware; and others too numerous to list.

Further Reading

Leindorf, David and Etra, Donald. Ralph Naders Study Group Report on First National City Bank, New York, Grossman Publishers, 1973; Citibank, Nader and the Facts, New York, Citibank, 1974; Cleveland, Harold van B. and Huertas, Thomas F. Citibank 1812-1970, Cambridge, Massachusetts, Harvard University Press, 1985; Hutchison, Robert A. Off the Books, New York, William Morrow and Company, 1986.

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Citicorp

Citicorp

founded: 1812 as city bank of new york

Contact Information:

headquarters: 399 park ave.
new york, ny 10043 phone: (212)559-4822 fax: (212)559-5138 toll free: (800)285-3000 url: http://www.citicorp.com

OVERVIEW

Citicorp, also known as Citibank, is the second-largest U.S bank. Citicorp, along with its subsidiaries and affiliates, is a financial service institution serving approximately 3,000 locations, offering retail and corporate products in 100 countries worldwide. It is the world's largest credit card issuer and the sole provider of global consumer banking. Its services include savings and checking accounts, credit cards, and consumer loans. Because Citicorp operates as a local bank, many of its competitors are, in fact, other local banks. Citicorp conducts business within two franchises, Global Consumer and Global Corporate Banking. Though Citicorp is second to Chase Manhattan Corporation on the U.S. bank asset ranking, Citicorp has the larger global presence. Worldwide Citibanking accounts numbered 20 million as of March 31, 1998, up 6 percent from 1997.

Citicorp's operations span 37 countries in central/eastern Europe, the Middle East and Africa; 26 countries in Latin America; 16 countries in Asia; 19 countries in western Europe, as well as Canada and the United States. The company's goal is to have 1 billion customers worldwide by 2010, up from about 60 million today.


COMPANY FINANCES

Global Consumer net income in the first quarter of 1998 was $458 million, compared with $493 million in 1997. The increase primarily reflects strong performance in the North America, Europe, and Japan Citibanking businesses. Global corporate banking net income was $753 million in the first quarter, up $104 million or 16 percent from 1997. Citicorp's stock ranged from a low of $109 to a high of $182 over a 52-week period.

Citicorp's earnings increased 7 percent for the first quarter of 1998 to 1.1 billion while chief rival, Chase Manhattan, reported a 22-percent decrease for the same period. Citicorp's increase was the result of a recent announcement of the company's plans to merge with Traveler's Group. Following this announcement Citicorp's market value increased to $81.9 billion on April 6, 1998. Providing the merger is approved, in particular by the Federal Reserve, the combined company would dominate the banking industry with $150-billion market capitalization. Citicorp's earnings per share were $2.23, exceeding analysts' estimates.


ANALYSTS' OPINIONS

Although some analysts were more than doubtful of Citicorp's recovery after 1991, many see a company whose fourth-quarter earnings in 1996 were better than the per share increase anticipated by Wall Street analysts. By 1997 Citibank repurchased $820 million of its stock. By doing this, Citicorp was showing investors it had great prospects for the future.

Citicorp's strategy of selling brand recognition for customer loyalty is questioned by some critics. First, as Carol J. Loomis pointed out in the April 29, 1996, issue of Fortune, advances in technology might not allow for that kind of loyalty. Why, she asks, should customers remain loyal to Citicorp when they can surf the Web and compare financial institutions? Also, she continues, what value does sticking to high premium prices have when Citicorp's competitors are lowering theirs? CEO John Reed claims the competition for this strategy hasn't been shaped yet.


HISTORY

Colonel Samuel Osgood founded City Bank of New York in 1812, later renamed National City Bank of New York. It became the first commercial bank to offer consumer loans and by 1939 had more than 100 offices in foreign lands. In 1955 it merged with First National (New York) and was again renamed First National City Bank, only to change to Citicorp in 1974.

Growth continued in the late 1970s when Walter Writson, the company's CEO at that time, launched Citicorp's international business. Citibank entered the credit card market and became the largest issuer in the United States by 1977. It was also the first bank to present ATMs (automatic teller machines). John Reed, the individual behind the creation of these machines, became Citicorp's chairman in 1984.

By the 1980s Citibank was the largest bank in the United States, spreading into San Francisco, Chicago, Miami, and Washington, DC. However, the 1980s proved to be difficult times for the company due to defaulted loans overseas, which cost the company $4 billion in 1987 and 1989. Following this loss Citibank faced the decline of the commercial real estate market in the United States. Struggling to regroup, the company acquired $2.6 million by recapitalizing in 1991 and 1992. Selling assets and eliminating dividends also proved necessary for survival. In 1992 the U.S. government put a limit on the number of loans the company was permitted to make.


STRATEGY

Citicorp's goal is to expand earnings by 10 to 12 percent per year. Seeing a need for impressive growth, John Reed brought in new management from outside of the company in an attempt to improve the company's image. These efforts reflected Reed's goal to establish Citicorp as a well-recognized and well-respected name. Citicorp continues to seek alliances that provide broader physical distribution. The company's early entry into the international market has proven successful and profitable. Many other banking institutions are just beginning to enter foreign markets, due to the saturated market in the United States (in particular, credit cards).

Citicorp is known for positioning itself to gain the business of customers early in their lives. Citicorp may initially provide a student loan or credit card and later provide a mortgage, car loan, or investment product. This is what Citicorp refers to as a "life cycle" approach to marketing. The company targets the "twentysomething" market to invest in Roth IRAs. Citicorp developed a brochure titled "Get a Roth Rolling . . . and Other Ideas On How to Fund Your Retirement," which is designed to encourage young people to think ahead.

Citicorp's credit card market share in Asia is twice that of its largest rival. Citicorp was the first bank to offer 24-hour-a-day, 7-day-a-week service, multicapability ATMs, and credit cards to the Asian region.

INFLUENCES

Citicorp's initial struggles in the late 1980s and early 1990s revolved around two major setbacks: overseas financial difficulties and a decline in the commercial real estate market. The 1990s proved to be times of slow-gaining strength for such a prosperous company one decade earlier. By 1991 the company had lost $457 billion, and fears of total failure plagued the minds of investors and analysts. Although Citicorp's international difficulties continued in the late 1980s, particularly in Brazil and Argentina, the company was not quick to shy away from other promising, arising markets. In fact, the company's willingness to continue to invest in foreign markets is what later proved to be a saving factor. Citicorp also avoided having to sell part of its credit card business during the difficult times. Credit cards, in turn, churned up $1.2 billion for the company in 1995. That year Citicorp returned to a prosperous state, with profits totalling $3.5 billion and a record-setting return on equity of 18 percent. By 1996 Citicorp was operating in over 96 countries. Herein lies John Reed's strategic shifts of aiming for 10 to 12 percent return on equity.

CURRENT TRENDS

Citicorp diligently sought to develop and implement a $700 million database business undertaking called the Relationship Banking System (RBS). The idea here was to improve the relationship between the customer and Citicorp via a computerized database. In essence, customers would be able to track their financial status using their Citi-cards or home computers. Also involved in this project was a plan to increase the customer information on file, allowing the company to track the lives of its customers and send information appropriate to their experiences.

FAST FACTS: About Citicorp


Ownership: Citicorp is a publicly owned company traded on the New York, Chicago, Pacific, London, Amsterdam, Tokyo, Zurich, Geneva, Basle, Toronto, Dusseldorf, and Frankfort Stock Exchanges.

Ticker symbol: CCI

Officers: John S. Reed, Chmn., 58, 1997 base salary $31,100,792; Paul J. Collins, VChmn. Emerging Markets, 60, 1997 base salary $13,993,188; H. Onno Ruding, VChmn., 57, 1997 base salary $1,348,000; Victor J. Menezes, Exec. VP & CFO

Employees: 93,700 (including 54,800 outside the United States)

Principal Subsidiary Companies: As a global company with approximately 3,000 locations and affiliate offices worldwide, Citicorp's principal subsidiaries include: Citibank Mexico (SA Grupo Financiero Citibank); Citibank, NA; Citibank Overseas Investment Corporation; Citibank Privatkunden AG (Germany); Citicorp Holdings, Inc.; Citicorp Mortgage, Inc.; Citicorp North America, Inc.; and Court Square Capital Ltd.

Chief Competitors: The company is subject to competition from both bank and non-bank insititutions that provide financial services. Citicorp's primary competitors in the United States include: Chase Manhattan Corp. and BankAmerica.


Citicorp cut its fees to remain competitive within the electronic trades (in particular Fidelity Brokerage Services and Charles Schwab & Co.). Citicorp now charges $19.95 for electronic trades and $29.95 for trading with a live representative. With its new fees Citicorp under-cuts the discount brokerage leader, San Francisco-based Schwab, which charges a $29.95 fee for electronic trades. Although Citicorp does not offer Web-based trading, it plans to add the capability early in 1999.

Citicorp and Travelers Group are planning to combine their resources with what is being called a megamerger. The new organization, which will be named Citigroup Inc., will serve over 100 million customers in 100 countries around the world. The April 20, 1998 issue of Business Week stated, "The Citicorp-Travelers Group merger will create a global financial services giant with $700 billion in assets. Previous financial supermarket models have failed, but changing investor demographics could make this deal the model for a financial services revolution." CEO John Reed stated in Fortune magazine that the ability to cross-market and globalize was a major attraction in the merger of the two companies. The projected target date is the third quarter 1998.

PRODUCTS

Citicorp's newest product offering is the CitiFreedom Annuity Plus, which is underwritten by Citicorp Life Insurance Co. The CitiFreedom program for retirement is aimed at investors aged 35 to 55. In particular, it is trying to capture baby boomers during their prime investment years. The annuity guarantees a return of at least 4.25 percent and requires customers to invest at least $150 a month for 10 years.

On April 2, 1998, Citibank completed the acquisition of AT&T Universal Card Services. This acquisition strengthens Citibank's position as the leading credit card issuer. Citibank also launched the DriversEdge card, which enables customers to accumulate rebates toward the purchase or lease of a new car.

CORPORATE CITIZENSHIP

One obvious way Citicorp provides services to the community is by assisting those in financial need. For example, in La Paz, Bolivia, the company helped fund local businesses—even street vendors—who have come across resistance when seeking loans. By doing so, the company has helped develop international markets.

Other contributions include Citibank's sponsorship of a fund-raising event in Hong Kong. More than 750 employees participated in the Community Chest's Walk for Millions, collecting donations over $335,000. In the United States, Citicorp sponsored "The Glory of Byzantium," an art exhibit at the Metropolitan Museum of Art in New York. Citibank's efforts to support the arts include grants to symphony orchestras, theater and dance companies, performing-arts centers, libraries, museums, festivals, and exhibitions. The company also provided grants in Germany, Brazil and Mexico.

CHRONOLOGY: Key Dates for Citicorp


1812:

Founded as City Bank of New York

1914:

Company is renamed National City Bank of New York

1955:

Merges with First National (New York); renamed First National City Bank

1961:

Offers high-interest specified-term CDs

1967:

Incorporates in Delaware

1968:

First National City Corp. is created as a holding company

1974:

Company is renamed Citicorp

1977:

Becomes largest issuer of credit cards

1978:

Acquires Carte Blanche

1981:

Acquires Diners Club; surpasses Bank America to become the largest U.S. bank

1984:

John Reed becomes chairman

1985:

Introduces Direct Access

1986:

Introduces touch-screen automated teller machines

1987:

Acquires Great Western Leasing and Great Western Credit companies

1992:

U.S. government sets limits as to the number of loans a company could make; begins issuing Photocards

1993:

Merges their savings banks and creates Citibank, FSB

1994:

Opens the first foreign-owned commercial bank in Russia; sells Quotron Systems, Inc.

1997:

Becomes first U.S. bank to conduct yuan-based transactions in China

1998:

Acquires AT&T Universal Card Services; Citicorp and Travelers Group announce plans to merge and form Citigroup Inc.


Citicorp also involved itself in supporting low- and middle-income housing structures. The company invests in low-income housing tax credits, aiding the financing of the construction of these sites. St. Edmund's Corner in New York is a typical example. Here, four- and five-bedroom units are made available at an affordable price for households with incomes less than 50 percent of the region's average.


GLOBAL PRESENCE

Citicorp planted itself into international markets early in its history. It operates in more than 96 countries and territories, including western Europe, Asia/Pacific, and Latin America. The Asia Pacific region remained a prosperous area of growth for Citicorp, reaping profits in 1994 of $781 million, more than one-fifth of the company's total profits.

By 1997 Citicorp obtained more than half of its profits from new, developing international markets. Commercial banking revenues earned by Citibank in countries other than the United States were trading—29 percent, transaction service—32 percent, lending—10 percent, and capital markets/other—21 percent.


EMPLOYMENT

Citibank employs approximately 93,700 individuals worldwide. The company continues to improve its employee evaluation system to ensure a person's qualifications best suit his/her job description. Citicorp emphasizes leadership, teamwork, and building effective control environments for managing cooperatively.

Recently two black Citibank employees filed a lawsuit claiming white co-workers had been sending racist e-mail back and forth. The lawsuit claimed that the plaintiffs were not provided the same work environment as whites, had been denied promotions, received less pay, and witnessed racially stereotypical conversations by supervisors. Citicorp continues to investigate the situation.


SOURCES OF INFORMATION

Bibliography

aley, james. "john reed speaks." fortune, 11 may 1998.

chase, brett. "chase profits down 22% slim 7% rise for citicorp." american banker, 22 april 1998.

"chemical, chase post strong earning gains." fox news network, 21 january 1997. available at http://www.foxnews.com.

"citicorp." hoover's online, 12 may 1998. available at http://www.hoovers.com.

citicorp annual report. new york: citicorp, 1997.

"citibank describes byzantium exhibit as major event in arts-support programs." news from citicorp, 3 march 1997. available at http://www.citibank.com.

citibank home page, 18 may 1998. available at http://www.citibank.com.

"citibank is voted 'best bank' for second year running in euromoney's 1996 excellence awards." news from citicorp, 11 july 1996. available at http://oak2.citicorp.com.

"citicorp marketing roth iras to gen x." american banker, 30 march 1998.

"employees sue citibank over racist e-mail." fox news, 19 february 1997. available at http://www.foxnews.com.

glasgall, william. "just the start?" business week, 20 april 1998.

holland, kelley. "the ceo who never sleeps." business week, 29 january 1996.

loomis, carol j. "citicorp: john reed's second act." fortune, 29 april 1996.

malkin, elisabeth, et al. "no deposit, no return." business week, 23 september 1996.

marcial, gene g. "irate at a miserly student loan." business week, 27 may 1996.

matthews, gordon. "citi leads in market-cap derby; top 100 gained 10% in quarter." american banker, 13 april 1998.

quittner, jeremy. "citicorp testing unusual variable guaranteed to return at least 4.25%." american banker, 22 january 1998.

ring, niamh. "citicorp cuts trade fees to compete with discounters." american banker, 2 february 1998.

schmeltzer, john. "'equity' loans may boost funds for communities." chicago tribune, 25 october 1996.

"stock focus: citicorp." the tampa tribune, 19 february 1997. available at http://www.tampatrib.com.


For an annual report:

on the internet at: http://www.citibank.comor write: citicorp, corporate affairs, 850 3rd ave., 13th fl., new york, ny 10043


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. citicorp's primary sics are:

6021 national commercial banks

6035 federal savings institutions

6712 bank holding companies

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Citigroup Inc.

Citigroup Inc.

399 Park Avenue
New York, New York 10043
USA
Telephone: (212) 559-1000
Fax: (212) 793-3946
Web site: www.citigroup.com

LIVE RICHLY CAMPAIGN

OVERVIEW

Note: Also see essay for Citibank.

Citibank, a subsidiary of Citigroup Inc., the largest financial-services company in the world, offered consumer and corporate banking services through some 1,400 offices in more than 40 countries. In the early twenty-first century, amid a strong U.S. economy, Citibank initiated research for an advertising campaign to promote its personalized services, attract financially savvy consumers seeking options for investing their new wealth, and strengthen brand recognition. With the help of newly hired advertising agency Fallon Worldwide of Minneapolis, Citibank launched the "Live Richly" advertising campaign in 2001.

The rebranding campaign, with an estimated budget of $100 million, was built around the tagline "Live Richly." The television, print, and billboard campaign featured slogans such as "People with fat wallets are not necessarily more jolly," "Holding shares shouldn't be your only form of affection," and "He who dies with the most toys is still dead," emphasizing the importance of living life to the fullest while downplaying the focus on money. In addition to promoting the Citibank brand, the campaign sought to highlight Citibank's credit-card division as well as its retail bank operations.

Several of the "Live Richly" television commercials were named "Best Spots" by Adweek magazine. The campaign ran through 2004 and inspired such related campaigns as "Identify Theft Solutions," which promoted Citibank's security solutions for credit-card customers. "Live Richly" succeeded in raising interest in Citibank and its offerings: following the unveiling of ads for Citibank's new financial service Citipro, the number of information requests for Citipro at retail branches increased 47 percent.

HISTORICAL CONTEXT

Founded in 1812 as the City Bank of New York, this urban merchant's bank continued to expand and diversify its services over the next century. The bank changed its name to Citibank, N.A. (National Association), in 1976, following its parent holding company's change to Citicorp. In 1998 Citicorp and the Travelers Group completed a $76 billion merger to form Citigroup, Inc. Citicorp was at the time the second-largest commercial bank, and Travelers Group was a leading international insurance/investment-banking firm. The Citicorp-Travelers merger thus represented a new era of horizontal expansion.

Citigroup then began an acquisition spree that included acquiring in 2002 Golden State Bancorp (the parent company of First Nationwide Mortgage and California Federal Bank), a move that added 352 branches and approximately 1.5 million new customers to Citigroup. By then the company was well on its way to having 3,000 bank branches and consumer-finance offices in the United States and Canada, plus an additional 1,500 locations worldwide.

The terrorist strikes of September 11, 2001, initiated changes in American opinions regarding finances. While Americans were left reordering their priorities to allow more time at home with family, Citibank was creating a "new standard" in consumer retail banking. "In a down economy people want to hear that money isn't important," said Al Ries, chairman of Ries & Ries, a marketing consultancy in Atlanta, Georgia. Though the market research for the "Live Richly" campaign had been completed prior to 9/11, Citibank, with its simple and reassuring ads, benefited from consumers' fears of corporate layoffs and the stock-market instabilities of a down economy.

"Live Richly" was Citibank's first major advertising campaign since "The Citi Never Sleeps," which ran in the 1980s and early 1990s. "The Citi Never Sleeps" was developed by ad agency Foote, Cone & Belding's Chicago division and promoted individual banking products. In 1996 agency J. Walter Thompson followed "The Citi Never Sleeps" with an international campaign designed to promote Citibank's international services, such as traveler's checks and a global ATM network. The campaign sported the tagline "Your Bank, Your Money, Your World."

In 1997 Citibank shocked the advertising world by hiring yet another new ad agency, Young & Rubicam, and giving the agency responsibility for all its advertising and direct-marketing needs, in total worth an estimated $500 to $700 million. Prior to 1997 Citibank had divided its marketing assignments among several major agencies, which were blindsided by Citibank's decision. In 2000 Citibank again shopped for a new agency. From seven contenders, Fallon Worldwide was selected.

TARGET MARKET

In order for Citibank to reach its goal of becoming a global brand with one billion customers by 2010, it needed to appeal to a broad population. The campaign aimed to attract middle-income consumers, some 90 million Americans, and intended to accomplish this by convincing them that Citibank understood their values. Specifically, Fallon targeted what it defined as "balance seekers." Balance seekers were not driven by money but used it to fund parts of their lives that made them happy. According to Anne Bologna, director of planning at Fallon, the agency conducted more than 20 focus groups to better understand consumers' relationships with their money. Bologna explained, "We found more than 90 million adults in this country are looking for balance in their lives. They're not striving to become millionaires, and money isn't their end goal. They view money as a tool to help them attain balance and live their priorities."

In addition to luring middle-income balance seekers, Citibank targeted young urban consumers, including the segment of the population labeled Generation X (people born between 1965 and 1980). Members of Generation X had a reputation for avoiding all things stodgy. Known for seeking alternative approaches to life, Generation X consumers after 9/11 seemed to assiduously avoid the corporate norm, opted for flex time, and often worked from home. Citibank hoped to connect with these consumers through humor and "un-banklike" advertising. In a 2001 press release Fallon Minneapolis president and executive creative director David Lubars commented, "Citibank's new creative is a significant departure from advertising traditionally seen in this category. We've used humor and emotion in the ads to help Citibank connect with people on a more human level than is typically seen from a financial brand. The work establishes Citibank as a consumer ally and friend, not an institution."

NOT EVERYONE WAS LIVING RICHLY

Not everyone found Citibank's "Live Richly" advertising campaign to be charming and warmhearted. Some rejected as a ruse Citibank's message that there was more to life than money. In 2003 the Rainforest Action Network, an environmental organization, launched a contest calling for fake advertisements that highlighted Citibank's allegedly corrupt business practices and environmental and social destruction. Patterned after the "Live Richly" print ads, the submissions were posted on a website. Examples of fake ads included "Funny how nobody ever calls it forest destruction" and "Forest Destruction and Global Warming? We're banking on it!"

COMPETITION

Citigroup reportedly reaped $47 million in net profits a day in 2004 and ruled the financial-services industry. Competitors, among them JPMorgan Chase, Bank of America, Merrill Lynch, and Morgan Stanley, worked to chip away at Citibank's market share. Though Bank of America fell behind Citigroup in the United States in terms of assets, it was the third-largest U.S. bank and boasted the country's most extensive branch network. In fall of 2000 Bank of America launched a one-year, $100 million advertising campaign. It included television, radio, and print advertising and was introduced during the 2000 Olympic Games. Designed to strengthen the Bank of America brand and send the message that Bank of America could help customers grow financially, the campaign focused on two themes, "Grow" and "Why Not?" Bank of America marketing executive Barbara Desoer stated in a 2000 press release, "… our goal is to build and sustain awareness of what Bank of America stands for—a customer-driven company that provides innovative financial solutions through a variety of channels."

In 2001 Chase Manhattan and JP Morgan & Company merged to form JPMorgan Chase. By 2002 it was the nation's second-largest financial services firm, and in 2004 it had sales of more than $56 billion. Also in 2004 JPMorgan Chase acquired Bank One, the sixth-largest bank in the United States. JPMorgan Chase's advertising consisted primarily of smaller, more targeted campaigns. In 2002, for instance, the firm unveiled a marketing campaign aimed at Hispanic consumers, and the following year its online investing arm, BrownCo, initiated a $10 to $12 million campaign to attract active traders.

MARKETING STRATEGY

Citibank committed itself to the "Live Richly" campaign in 2001 by bolstering its advertising budget, increasing it to some $100 million; in comparison, according to Competitive Media Reporting, Citibank's U.S. advertising budget for the first nine months of 2000 was only $14.6 million.

In creating the "Live Richly" campaign, Fallon Worldwide avoided typical bank stuffiness, and, according to Maggie Shea of Fallon, it also did not want to talk about consumers and their money in a "sappy way." Instead Fallon worked to create an "emotional connection that felt fresh, modern, sophisticated and reassuring," Shea explained to Adweek. Rather than focusing on milestone events such as buying a home, having children, or graduating college, this bank campaign focused on "the everyday role of money."

The six-week newspaper component, budgeted at just under $2 million, consisted of a series of simple and quirky ads. They appeared in 19 daily newspapers across the United States, including the New York Times, the Chicago Tribune, the Miami Herald, and El Nuevo Herald, the Spanish-language edition of the Miami Herald. Initial ads were placed in unexpected sections of newspapers, such as the movie section and the comics. Larger, more detailed ads then appeared in main sections of newspapers for five weeks. Though newspaper advertising was thought to be old-fashioned by some in the advertising industry, it proved to be a key element in the "Live Richly" campaign. Fallon believed that newspapers had a dedicated readership and appealed to a wide variety of consumers. The agency estimated that 30 million consumers were exposed to the campaign through newspaper ads alone.

The print ads sought to appeal to readers on a human level. Lisa Seward, Fallon's media director, noted in Adweek, "The banking category across the board is guilty, I think, of speaking to consumers as account numbers and not as people. So [with this campaign], we're trying very hard to acknowledge customers as human, with human motivations." One ad that ran in the comics section declared, "Sometimes wealth is having time to read these." Other ads stated, "Sometimes wealth is buying the $6 popcorn and not obsessing over the fact that you just paid $6 for popcorn," and "If you gave up your morning coffee for a year, you could make an extra mortgage payment. But man, you'd be grumpy." Seward explained that the ads were not intended as attention grabbers. "They did pop off the page, but [they] were small and charming, in a quiet voice."

The television component focused on three areas: boosting the Citibank brand, pushing Citibank's credit-card division, and promoting local branch business. Acclaimed documentary filmmaker Errol Morris directed the brand-building commercials, which starred non-actors. One spot featured snippets of everyday life along with appropriate phrases—a child was swung around in the air by the father, accompanied by the text "Count your blessings"; a teenager made silly faces, and the text on screen read, "Investments mature. You don't have to"; an older gentleman joyously played the trombone to the text, "Dirty, rotten, filthy, stinking happy." All spots ended with the tagline "Live Richly."

Brief Citibank messages were shown on billboards, phone kiosks, bus shelters, subway stations, and construction bridges across six different cities in the United States. The slogans included messages such as "Healthy credit is good, but keep an eye on your cholesterol, too," "Hugs are on a 52-week high," and "The word 'splurge' loses meaning if it becomes a regular daily event." In 2003, in order to fund $2 million in church restorations, the prominent Grace Church at Broadway and 10th Street in New York posted above its portico a huge billboard with the Citibank logo and its "Live Richly" slogan; the ad's text read, "If happiness is just around the corner, turn often."

OUTCOME

Fallon's Citibank advertising continued in this humorous and nonthreatening vein for the following five years. In this time the "Live Richly" umbrella campaign spawned other, more targeted campaigns, including "Identity Theft Solutions" and "Thank You." The former promoted Citibank's anti-identity theft services for its credit-card clientele, while the "Thank You" campaign introduced Citibank's Consumer Rewards Program, which was also for its credit-card customers.

The "Live Richly" campaign's "Tire Swing" commercial was named one of Adweek magazine's "Best Spots" of 2004. Analyst Paul Jamieson of Gomez Advisors believed that Citibank's "6Live Richly" ads sent an attractive message to consumers, and he commented in Financial Services Marketing, "What they're really speaking to is what consumers desire these days, which has less to do with saving money and more to do with saving time. They're saying: 'Concentrate on the things that make life rewarding; we'll take care of the complicated stuff.' It's a great message." The advertising industry agreed, and "Live Richly" won a Gold EFFIE Award in 2002.

FURTHER READING

Beckett, Paul. "Citibank Unveils Advertising Campaign." Wall Street Journal, January 15, 2001.

Carvell, Tim. "Citi of Fear." Moneybox, July 31, 2002.

Case, Tony. "Fallon." Adweek, June 18, 2001.

Elliott, Stuart. "Citibank Consolidates, Stunning Madison Ave." New York Times, August 8, 1997.

Gordon, Joanne. "Do You Really Need That?" Forbes, March 19, 2001.

Hogue, Ilyse. "The Cost of Living Richly: Citigroup's Global Finance and Threats to the Environment." Multinational Monitor 23, no. 4 (April 2002).

Kapler, Bob. "Living Richly at Citibank Means There's More to Life than Money." Financial Services Marketing, March 20, 2001.

Lamport, Joseph. "Wake Up and Smell the Subterfuge." Salon.com, February 4, 2002.

"Off the Mark." Delaney Report, February 12, 2001.

Wasserman, Todd. "Banking on Upturn, but '01 Woes Add Up." Brandweek.com, April 11, 2005.

                                     Bridget McGinniss Kerr

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