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Overview

Citigroup began falling apart in 2007, as sliding home prices caused an increase in loan
defaults which caused a drop in the value of bonds backed by loans. In the fourth quarter
-- as Citigroup's board shuffled out Prince and replaced him with Vikram Pundit -- the
bank posted a nearly $10 billion loss. It hasn't turned a profit since.

The company's stock price has suffered massive losses in recent months, sending Citi's
market capitalization into precipitous decline. Opening 2008 near $30, the stock had
already lost 30 percent of its value by Oct. 1. As the market meltdown intensified, Citi
shares dropped near $3 in November then doubled their value to end 2008 at $6.71,
down 77 percent for the year.

The first two months of 2009 have seen Citi shares slide another 64 percent, giving the
bank a market cap below $14 billion, a far cry from the more than $100 billion market
cap it held a year ago.

Citigroup already has received $45 billion in U.S. bailout money made up primarily of
debt-like preferred shares, plus federal guarantees to cover losses on some $300 billion
in risky investments. It also has transferred control of its Smith Barney brokerage to
Morgan Stanley in return for $2.7 billion, and has prepared itself for more asset sales by
splitting in two -- effectively undoing the merger that created Citigroup a decade ago.

Introduction
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Citi is today’s pre-eminent financial services company, with some 200 million customer
accounts in more than 100 countries. Our history dates back to the founding of Citibank
in 1812, Bank Handlowy in 1870, Smith Barney in 1873, Banamex in 1884, and Salomon
Brothers in 1910.

Following the $140 billion merger of Citicorp and Travelers Group to create the world's
largest financial services organization, Citigroup was formed on October 8, 1998. Their
past is, hence, separated into the operations of several firms that over time formed into
Citicorp, a multinational banking corporation serving more than a hundred countries; or
Travelers Group, whose businesses covered credit services, consumer finance, brokerage,
and insurance.

Citicorp

It all begins with the City Bank of New York, which was contracted by New York State
on16th of June, 1812, with a capital of two million.The bank opened for business on
September 14 of that year serving a group of New York merchants, and Samuel Osgood
was elected as the first President of the company. After it joined the new U.S. national
banking system the company's name was altered to The National City Bank of New York
in 1865, and it became the biggest American bank by 1895. It became the primary
contributor to the Federal Reserve Bank of New York in 1913, and although the bank
had, since the mid-nineteenth century, been active in plantation economies, such as the
Cuban sugar industry the next year it opened the first overseas branch of a U.S. bank in
Buenos Aires. The 1918 procurement of U.S. overseas bank International Banking
Corporation aided it to become the foremost American bank to exceed $1 billion in
assets, and it became the biggest commercial bank in the world in 1929. As it blossomed,
the bank became a leading innovator in financial services, becoming the first major U.S.
bank to offer compound interest on savings (1921); unsecured personal loans (1928);
customer checking accounts (1936) and the negotiable certificate of deposit (1961).
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The bank changed its name to The First National City Bank of New York in 1955, which
was shortened in 1962 to First National City Bank on the 150th anniversary of the
company's foundation. The company organically entered the leasing and credit card
sectors, and its introduction of USD certificates of deposit in London marked the first
new negotiable instrument in market since 1888. Later to become MasterCard, the bank
introduced its First National City Charge Service credit card - popularly known as the
"Everything card" - in 1967.

In 1976, under the leadership of CEO Walter Wriston, First National City Bank (and its
holding company First National City Corporation) was renamed as Citibank, N.A. (and
Citicorp, respectively). Shortly afterward, the bank launched the Citicard, which
pioneered the use of 24-hour ATMs. As the bank's expansion continued, the Narre
Warren-Caroline Springs credit card company was purchased in 1981. John S. Reed was
elected CEO in 1984, and Citi became a founding member of the CHAPS clearing house
in London. Under his leadership, the next 14 years would see Citibank become the largest
bank in the United States, the largest issuer of credit cards and charge cards in the world,
and expand its global reach to over 90 countries.

Citigroup is a major integrated financial services firm. Its lines of business include:

• Retail Banking
• Commercial Banking
• Financial Advisory Services
• Investment Management
• Investment Banking
• Securities Trading
• Insurance
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Past Performance
Past performance has been hindered by following problems:

Citigroup proprietary government bond trading scandal

Citigroup was criticized for disrupting the European bond market by rapidly selling €11
billion worth of bonds on August 2, 2004 on the MTS Group trading platform, driving
down the price, and then buying it back at cheaper prices.[38]

Regulatory action

On March 23, 2005, the NASD announced total fines of $21.25 million against Citigroup
Global Markets, Inc., American Express Financial Advisors and Chase Investment
Services regarding suitability and supervisory violations relating to mutual fund sales
practices between January 2002 and July 2003. The case against Citigroup involved
recommendations and sales of Class B and Class C shares of mutual funds.

Theft from customer accounts

On August 26, 2008 it was announced that Citigroup agreed to pay nearly $18 million in
refunds and fines to settle accusations by California Attorney General Jerry
Brown that it wrongly took funds from the accounts of credit card customers.
Citigroup would pay $14 million of restitution to roughly 53,000 customers
nationwide. A three-year investigation found that Citigroup from 1992 to 2003
used an improper computerized "sweep" feature to move positive balances from
card accounts into the bank's general fund, without telling cardholders.

Brown said in a statement that Citigroup "knowingly stole from its customers, mostly
poor people and the recently deceased, when it designed and implemented the
sweeps...When a whistleblower uncovered the scam and brought it to his superiors, they
buried the information and continued the illegal practice."
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Problems Citigroup faces now:

• Though it reported positive net income, Citigroup shareholders lost 18 cents a share
due to agreements Citigroup was forced to make with other, private investors who
loaned the company money earlier in the credit price.
• Citigroup wrote down another $7.3 billion, but took only $2.7 billion against future
loan losses. That's less than the $4 billion reserve J.P. Morgan Chase & Co. took
earlier this week, and J.P. Morgan is considered to have a far stronger loan
portfolio. Kelly said he expects to add to that reserve throughout the year.
• Citigroup's card, money management and consumer banking franchises showed a
declined of 10%, 20% and 18%, respectively. The declines come even as Citi is
aggressively raising fees on customers.
• The bank postponed more detail on its plans to exchange the government's preferred
stock for common stock. Citi said it would wait for the stress test results to be
released, if they are released.

The lingering concerns about Citigroup’s business continue to offset any positive
takeaways from the most recent results. Its banking business was flat to lower and it
continues to see its assets, the pile of cash it had made over the last decade, disappear. The
stock's performance today, down 4% at midday, reflects that investors are not convinced
the worst is passed.
If the economy turns, Citigroup's brief glimmer of hope will be seen as a turning point in its
recovery, if conditions deteriorate, it will be remembered as wishful thinking.

Problems it faced:
As the sub prime mortgage crisis began to unfold, heavy exposure to toxic mortgages in the
forms of Collateralized debt obligation (CDOs), compounded by poor risk management led
the company into serious trouble. In early 2007 Citigroup began eliminating about 5
percent of its workforce, in a broad restructuring designed to cut costs and bolster its long
underperforming stock. By November 2008, the ongoing crisis hit Citigroup hard and
despite federal TARP bailout money, the company announced further cuts. Its stock market
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value dropped to $6 billion, down from $244 billion two years prior. As a result, Citigroup
and Federal regulators negotiated a plan to stabilize the company. Its single largest
shareholder is Prince Al-Waleed bin Talal of Saudi Arabia, who has a 4.9% stake. Vikram
Pandit is Citigroup's current CEO, while Richard Parsons is the current chairman.
Below is a chronology detailing some of the key events that precipitated the company's
crisis.
October 1st – 15th -- Citigroup said it anticipated that third-quarter profit would fall 60%
from the prior year after huge write-downs for unsold debt it issued to finance corporate
takeovers and for big losses on the value of subprime mortgage-backed securities. The
financial-services giant blamed "dislocations in the mortgage-backed-securities and credit
markets, and deterioration in the consumer-credit environment." The Financial Times,
citing senior executives, reported that Prince wanted to see the results of a review of the
$3.3 billion of losses and write-downs sustained in its investment bank in the third quarter
before deciding on whether heads should roll. Citigroup merges its investment-banking and
alternative-investments businesses into a single institutional clients group headed by
Vikram Pandit. Citigroup said the third-quarter profit fell 57%, after accounting for
previously announced write-downs for bad loans and other credit issues. The company
warned that related issues concerning consumer mortgages could affect results for the
fourth quarter as well.
November 1st to 5th -- Citigroup shares, part of the Dow Jones Industrial Average, slide 7%
to reach a multiyear low amid new concerns that the financial-services conglomerate may
not be able to support its hefty dividend payout. The Wall Street Journal reported that
Prince will offer to resign at an upcoming Citigroup board meeting, citing people familiar
with the matter. Citigroup said Prince stepped down as chairman and CEO, to be replaced
by Rubin and Bischoff while a formal executive search is conducted. Citigroup's board
gathered for an emergency meeting with Prince's status as CEO hanging in the balance.
Citigroup, in a filing with the Securities and Exchange Commission, said that contrary to
market speculation, it has no current plans to cut its quarterly dividend. Citigroup's Tokyo-
traded shares ended 5% higher ended their first day of trading, but volume in the initial
public offering was thin as news related to the banking giant's losses and global-level
management changes weighed.
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Federal Aid
The Federal assistance can be summarized as follows:
Part of a government guarantee of $301 billion in Citigroup assets by multiple entities
(Treasury,FDIC, Federal Reserve). After Citigroup absorbs the first $29 billion in losses,
the remaining losses are split 90:10 between the government and Citigroup, with the first
$5 billion absorbed by the Treasury with TARP funds, the next $10 billion paid by the
FDIC, and the remaining losses covered by the Federal Reserve with a non-recourse loan.
Detail:
The U.S. Treasury Department, Federal Reserve and the Federal Deposit Insurance
Corp. entered an agreement to bail out troubled Citigroup Inc. with “a package of
guarantees, liquidity access, and capital,” according to a joint statement. The U.S.
government is committed to supporting financial market stability, which is a
prerequisite to restoring vigorous economic growth.

The Treasury and the FDIC plan to provide protection against the possibility of
unusually large losses on an asset pool of approximately $306 billion of loans and
securities backed in part by residential real estate, which will remain on Citigroup’s
balance sheet. In return, Citigroup will issue preferred shares to the Treasury and
FDIC. The Fed said it stands ready to backstop residual risk in the asset pool through a
non-recourse loan.

According to the joint statement by the government agencies, the Treasury, Fed and
FDIC will work together to “support a healthy resumption of credit flows to
households and businesses,” “exercise prudent stewardship of taxpayer resources,”
“circumscribe the involvement of government in the financial sector,” and “bolster the
efforts of financial institutions to attract private capital.”

In addition, the Treasury said it will invest $20 billion in Citigroup from the Troubled
Asset Relief Program in exchange for preferred stock with an 8 percent dividend.
Citigroup said that it will comply with enhanced executive compensation restrictions
and implement the FDIC’s mortgage modification program.
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Own Comments and Suggestions:

Many people are wondering why Citigroup should get a bailout, and the Big 3
automakers were told to go packing. After all, both companies made bad strategic
decisions - Citigroup in using too much leverage in buying mortgage-backed securities,
and the Big 3 in not retooling for more fuel-efficient vehicles. Both have thousands of
employees that will be laid off if the companies go bankrupt. Are banks somehow more
important to the economy than auto manufacturers? Perhaps not morally, but financially
they are. To get this economy back on its feet, it needs capital more than cars. Banks
provide that. However, with last week's 800 point drop in the Dow, banks assets are too
low to give them money to lend. That's why the Citigroup bailout included options to buy
common stock, which shows government support of common stockholders. This caused
the Dow to regain last week's loss in two days. This rally for financial stocks means more
capital for banks, and more capital for them to lend.
• Instead of putting out the flames or trying to put out the flames by extending the
unlimited support of the Federal Reserve and draining the tax money, Citigroup
needs to focus on the problem at hand and remedy on what caused the fire in the
first place. They need to set up a special committee consisting of borrowed minds
from various think tanks and financial institutions in order to curb the problem at
hand. Once this committee has come to some sort of a conclusion, the
management should be ready to act on any and every form of opinion given by
these bright minds. In this way Citigroup can avoid more problems of their
hierarchy and get on with the actual problem.
• Drastic changes are needed in the workings of the group of companies. The
management should think in a way that brings them back to the basics. In this way
they can be sure of their policies whether it be in the field of insurance or credit
schemes. This way once they have come back to the basics they might be able to
solve the subprime mortgage crisis. I believe they should start a scheme called “
Saving the economy, One house at a time” and then work on the problem house
by house. And since they are grossly understaffed they aren’t going to be able to
do the whole scheme at the same time for many people.
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• Citigroup needs to actually change direction. They need to work on parallel lines
for different solutions for the main problems. The TARP money as well as the
money promised by the Federal Reserve and the 36% owned by the government
won’t help Citigroup in the long run as their shares have reduced to only one cent
per share. They wouldn’t be able to gain much from any profit they get. And since
they are so much prevalent around the world this would affect them globally. This
profit factor might be helped by the fact that they have cut the amount of jobs
proportional to the crisis but then again the humanitarian views come into place.
The amount of jobs cut and the amount of people Citigroup has left stranded at a
time like the present where the credit crunch is taking on everyone without a job
and almost everyone with a job as well.
• Citigroup needs to stop talking about core values and actually do them. They have
given out more than a dozen press releases on what they thought happened. But
are they actually trying to put out the fire? Has Citigroup done some remedial
banking especially in the field of the subprime mortgage crisis? No one has any
answers for these as to give answers financial companies need to show numbers
alongside. These numbers would not rack up unless some kind of Aid program
was in place. They should take this crisis as a wake up call and use the federal aid
for the good of the people who kept them in business for so long - the public.
• Citigroup should not be nationalized. Whether or not Citigroup is nationalized is a
debatable topic. But I think it shouldn’t be nationalized or contracted by the
government as then all or most of corporate America and Fortune 500 companies
would be nationalized as well. It is a vicious circle. Citigroup also used to
influence a lot of politicians and Interest Groups. It used to finance most of the
campaigns for a lot of representatives and senators. If it is nationalized democracy
will get silent in the united states and as we can see Texas might leave the union.
All these problems arise from financial issues. So for the integrity and unity of the
country this company needs to remain a private company. They need to realize all
their costs as soon as possible and pay off the Federal Reserve. The 36% that the
government owns is jointly owned by the FDIC, Treasury and Government. They
need to get this back.
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References:
1. Citigroup Official Website : History, Legacy, Mission, Press Releases
http://www.citigroup.com/citi/corporate/history/citigroup.htm
2. Citi Federal Aid Deal This Week
http://www.moneynews.com/streettalk/citigroup_deal/2009/02/26/185860.html
3. Government Could Take As Much As 40 Percent Stake In Financial Giant; No
More Taxpayer Money Needed
http://wjz.com/national/citigroup.government.deal.2.945596.html
4. Federal Reserve Bails Out Ailing Citigroup By DIANA GOLOBAY
http://www.housingwire.com/2008/11/24/federal-reserve-bails-out-ailing-citigroup/
5. FED GUARANTEE OF CITIGROUP ASSETS
http://www.usbudgetwatch.org/federal-reserve-guarantee-citigroup-assets
6. Citigroup By Mark Kolakowski, About.com
7. FDIC, Federal Reserve and Treasury Agree to Provide Open Bank Assistance to
Protect Depositors http://www.fdic.gov/news/news/press/2008/pr08088.html
8. Citigroup – Marketwatch.com
9. Citigroup to Halt Dividend and Curb Pay-ERIC DASH - New York Times
http://www.nytimes.com/2008/11/24/business/24citibank.html?_r=1&hp
10. Citigroup job cull to hit 75,000 – BBC News
http://news.bbc.co.uk/1/hi/business/7733575.stm
11. Citigroup Crisis
http://www.mahalo.com/Citigroup_Crisis
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Appendix

Citigroup - Final Thoughts

- http://www.better-trades.com/stock-reviews/financial/citigroup/5-final-thoughts.asp

(January 12, 2009) - The impending Morgan Stanley deal is a giant step towards
deleveraging Citi's hulking, overweight balance sheet. Long Citigroup positions can only
pray for a potential short-term bounce from valuation buyers. On the downside, general
market malaise and weakness in the financial sector will continue to weigh on the
banking giant. Traders will be keeping a watchful eye on the January 22nd earnings call.

Citi CEO Vikram Pandit has been touting the beleaguered banking giant's improved
financial condition, compared to last year, to anyone who will listen. On the flip side, the
stock price and market cap nowhere near reflects the asset base Citi controls. The keys
for Citi remain a spinoff of assets that market insiders have been clamoring about for
years and an unloading of the toxic assets that are crushing its bloated balance sheet.

(November 20, 2008) - Salvation for long positions in Citigroup are relegated to a
potential short-term bounce from valuation buyers. On the downside, general market
malaise and weakness in the financial sector will continue to weigh on the banking giant.
Redemptions at hedge funds and forced selling by mutual funds who can't own stocks
below a certain low price could factor heavily into Citi's daily trade. Traders will be
keeping a watchful eye on the January 12th earnings call. Citi CEO Vikram Pandit has
been touting the beleaguered banking giant's improved financial condition, compared to
last year, to anyone who will listen. On the flip side, the stock price and market cap
nowhere near reflects the asset base Citi controls. The keys for Citi remain a spinoff of
assets that market insiders have been clamoring about for years and an unloading of the
toxic assets that are crushing its bloated balance sheet.