Citigroup was created when Citicorp and Travelers Group merged in 1998, creating a one-stop financial shop. Following its formation, Citigroup quickly expanded by constantly adding products. Credit cards quickly became one of its primary areas of growth at just the time plastic money markets began expanding exponentially; and, following Travelers Group’s entry, insurance became another focal area.
Origins
Citigroup worldwide was originally founded as the City Bank of New York on September 14, 1812 – just three days prior to America declaring war against Britain in the War of 1812.
Citigroup was initially formed to fill a void left by the collapse of First Bank of the United States and quickly rose to become one of the premier merchant banks in America. Citigroup has successfully evolved from being a consortium of bank institutions into a global financial powerhouse thanks to their dedication, innovation, adaptability, and commitment to customer satisfaction across a multitude of continents.
As the century progressed, Citibank gradually expanded into mortgages, credit cards, savings and loans, investment services and even insurance. Citibank president Walter Wriston made extensive use of his extensive business connections to lobby for relaxation of state banking laws; one result of these efforts was offering Visa and Mastercard cards to millions across America in 1967; this upset competing banks who issued similar cards; many who took up Citicorp’s offer later defaulted and cost Citicorp billions of dollars in losses.
Citicorp used several strategies in the 1980s to reduce its commercial banking losses, shifting away from interest rate-based income towards fees generated from services provided. Successful debt negotiations with developing nations helped limit losses on loans that might otherwise have gone into default and thus turned around losses of $4 billion from 1987 through 1989.
Now a publicly-traded firm with shares listed on several stock exchanges, its ownership is comprised of institutional investors, individual shareholders and company executives.
New York-based Morgan Stanley employees work around the world to meet customers’ financial and investment advice needs. Alongside offering products and services, Morgan Stanley invests in socially responsible investments as well as community involvement initiatives; their employees have supported numerous art exhibits and cultural institutions while giving grants to symphonies and educational organizations.
Mergers and Acquisitions
Citigroup transformed itself from its original holding company into an international financial services behemoth through a series of innovative deals during the 1990s, consolidating its investment banking business through acquisitions such as Salomon Smith Barney, Aetna and Shearson and creating Citicorp Inc. In 1998 it broke out from Glass-Steagall by merging with Travelers Group Inc to form Citigroup – effectively merging Travelers Property Casualty and Salomon Smith Barney operations under one umbrella while becoming the world’s largest bank and financial services company with over $6 trillion assets under management at peak.
Citigroup expanded its consumer finance and retail banking operations through significant acquisitions during this time, including Shearson’s Smith Barney brokerage division purchase that fit perfectly with their existing banking operations, providing one-stop shopping to wealthy clients looking for comprehensive product offerings. They also expanded internationally by purchasing European American Bank of Long Island as well as 130-year old Bank Handlowy branch network in Poland.
Citigroup further expanded its financial services operations through two massive acquisitions in 2001. First came European American Bank for $1.9 billion based in New York State doubling Citi’s retail banking presence immediately in its home state; while Grupo Financiero Banamex-Accival’s $12.5 billion purchase gave Citi an extensive retail, commercial, and investment banking presence throughout Mexico – representing one of the second-largest foreign investments by U.S. companies ever made there.
Citigroup completed its financial services empire through the massive Associates First Capital Corporation deal, adding subprime mortgage lending as well as home equity loan origination services in the US. Unfortunately, however, its purchase was complicated by an FTC investigation into allegations of deceptive marketing practices at Associates that led to one of the largest consumer protection settlements ever reached in US history: $240 Million Settlement With FTC
Citigroup has long been recognized for building its financial services empire through acquisitions, while pioneering innovative technologies such as ATMs and 24-hour PC banking. Furthermore, they are widely considered one of the premier investment banking bulge bracket firms worldwide, offering M&A advice, IPO underwriting services and debt/equity trading to corporate clients.
Globalization
Citicorp and Travelers Group merged to form Citigroup, creating a one-stop financial shop offering banking, brokerage services, insurance and investment products to its customers. Through its global network, the combined firm could meet clients’ banking, brokerage services, insurance and investment product needs both domestically and abroad. Citibank Consumer Bank units provided real estate secured loans as well as personal unsecured loans while Travelers Insurance offered long-term care insurance policies to protect those abroad.
Citigroup has long been recognized for adding innovative offerings to its lineup. Citigroup took an aggressive stance into credit cards during the 1960s just when plastic money market growth was intensifying; soon thereafter it expanded by merging with Travelers Insurance Group, anticipating client needs by including insurance within their offering.
The company expanded its retail presence globally, opening branches from Vietnam to Ivory Coast. One of the first banks to introduce ATMs was Bank of Montreal; ATMs allowed customers to withdraw cash or checks without visiting its branches; account information could also be found online and by telephone; eliminating long teller line wait times altogether.
Citigroup was well known for its global footprint that stretched from Asia to Poland, which enabled it to tap into emerging market clients’ growing wealth. Alongside consumer businesses such as banking and credit cards services, Citigroup offered corporate banking, global markets capital markets asset management credit card investment services to corporations worldwide.
However, its exposure to troubled mortgages in the form of collateralized debt obligations (CDOs) and inadequate risk management ultimately caused the subprime mortgage crisis of 2007. These issues stemmed from complex mathematical models which only considered mortgages in certain geographic areas; failing to take into account that millions of homeowners may default across the board. Further complicating matters was their close relationships between trading heads and senior risk officers that compromised oversight oversight.
Citigroup was forced by the crisis to reconsider its business strategy in three key areas: geographic footprint, product lines and talent. CEO Jane Fraser became the first female head of a major Wall Street firm and is placing greater emphasis on social responsibility and sustainability. She’s investing hundreds of millions through Action for Racial Equity initiative into closing US racial wealth gaps and increasing economic mobility for Black Americans.
Innovation
Citigroup has long been at the forefront of financial innovation. Their innovative products and global reach have established it as a highly recognizable and powerful company; this success was built through mergers, acquisitions and strategic moves which have all helped contribute to making Citigroup one of the titans of banking, investment and insurance industries today.
Even though the company has encountered its share of controversy, it has proven adept at adapting to changes in the financial environment. One of its first accomplishments was investing in an elaborate automated teller network that allowed customers to access funds any time day or night rather than waiting for human teller service; additionally it was one of the first banks that allowed its customers to track their finances using a computerized account-tracking system.
Citicorp diversified its product offering in the 1960s by aggressively expanding into credit cards as the plastic money market began its dramatic ascent. Citicorp further broadened its international operations, opening Citibank a.s. Praha as the first foreign bank in Czech Republic and providing comprehensive commercial banking services.
The company was not immune from the spate of scandals that rocked corporate America during the early 2000s, yet it acted to mitigate them by taking proactive steps toward reform ahead of legislators and regulators. One such measure included expensing its stock options voluntarily in 2003 as an important step toward increased accounting transparency.
Citigroup has not only introduced innovative financial products but has also continuously sought ways to optimize its existing operations and customer service. For example, in La Paz, Bolivia it funded local businesses including street vendors with funds provided from Citibank’s local branch. Furthermore, Citibank invested in small and medium enterprises including microfinance institutions.
Citicorp and Travelers Group merged in 1998, in what was described as an attempt at “financial supermarket”, to take advantage of shifting investor demographics. The merger created a massive global financial empire, but also led to Citigroup’s failure during the mortgage crisis of 2007. This failure was due to heavy exposure through collateralized debt obligations (CDOs) as well as poor risk management practices.
