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Citigroup was formed on October 9, 1998, following the $140 billion merger of Citicorp and Travelers Group to create the world's largest financial services organization.[6] The history of the company is, thus, divided into the workings of several firms that over time amalgamated into Citicorp, a multinational banking corporation operating in more than 100 countries; or Travelers Group, whose businesses covered credit services, consumer finance, brokerage, and insurance. As such, the company history dates back to the founding of: the City Bank of New York (later Citibank) in 1812; Bank Handlowy in 1870; Smith Barney in 1873, Banamex in 1884; Salomon Brothers in 1910.[30]

Citicorp 1812–1985[edit]

City Bank of New York was chartered by New York State on June 16, 1812, with $2 million of capital. Serving a group of New York merchants, the bank opened for business on September 14 of that year, and Samuel Osgood was elected as the first President of the company.[31] The company's name was changed to The National City Bank of New York in 1865 after it joined the new U.S. national banking system, and it became the largest American bank by 1895.[31] It became the first contributor to the Federal Reserve Bank of New York in 1913, and the following year it inaugurated the first overseas branch of a U.S. bank in Buenos Aires, although the bank had, since the mid-19th century, been active in plantation economies, such as the Cuban sugar industry. The 1918 purchase of U.S. overseas bank International Banking Corporation helped it become the first American bank to surpass $1 billion in assets, and it became the largest commercial bank in the world in 1929.[31] As it grew, 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).[31][32][33]

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.[31] The company organically entered the leasing and credit card sectors, and its introduction of U.S. dollar–denominated certificates of deposit in London marked the first new negotiable instrument in market since 1888. The bank introduced its First National City Charge Service credit card—popularly known as the "Everything card" and later to become MasterCard—in 1967.[31]

In 1976, under the leadership of CEO Walter B. 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.[31] 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 and the largest issuer of credit cards and charge cards in the world, and expand its global reach to over 90 countries.[31][32][34]

Travelers Group 1986–2007[edit]



The corporate logo of Travelers Inc. (1993–1998) prior to merger with Citicorp.

Travelers Group, at the time of merger, was a diverse group of financial concerns that had been brought together under CEO Sandy Weill. Its roots came from Commercial Credit, a subsidiary of Control Data Corporation that was taken private by Weill in November 1986 after taking charge of the company earlier that year.[6][35] Two years later, Weill mastered the buyout of Primerica—a conglomerate that had already bought life insurer A L Williams as well as stock broker Smith Barney. The new company took the Primerica name, and employed a "cross-selling" strategy such that each of the entities within the parent company aimed to sell each other's services. Its non-financial businesses were spun off.[35]

In September 1992, Travelers Insurance, which had suffered from poor real estate investments[6] and sustained significant losses in the aftermath of Hurricane Andrew,[36] formed a strategic alliance with Primerica that would lead to its amalgamation into a single company in December 1993. With the acquisition, the group became Travelers Inc. Property & casualty and life & annuities underwriting capabilities were added to the business.[35] Meanwhile, the distinctive Travelers red umbrella logo, which was also acquired in the deal, was applied to all the businesses within the newly named organization. During this period, Travelers acquired Shearson Lehman—a retail brokerage and asset management firm that was headed by Weill until 1985[6]—and merged it with Smith Barney.[35]

Salomon Brothers 1997–2003[edit]

In November 1997, Travelers Group (which had been renamed again in April 1995 when they merged with Aetna Property and Casualty, Inc.), made the $9 billion deal to purchase Salomon Brothers, a major bond dealer and bulge bracket investment bank.[35][37] This deal complemented Travelers/Smith Barney well as Salomon was focused on fixed-income and institutional clients, whereas Smith Barney was strong in equities and retail. Salomon Brothers absorbed Smith Barney into the new securities unit termed Salomon Smith Barney; a year later, the division incorporated Citicorp's former securities operations as well. The Salomon Smith Barney name was abandoned in October 2003 after a series of financial scandals that tarnished the bank's reputation.[citation needed]

Citicorp and Travelers merge 1998–2001[edit]

On April 6, 1998, the merger between Citicorp and Travelers Group was announced to the world, creating a $140 billion firm with assets of almost $700 billion.[6] The deal would enable Travelers to market mutual funds and insurance to Citicorp's retail customers while giving the banking divisions access to an expanded client base of investors and insurance buyers.

Although presented as a merger, the deal was actually more like a stock swap, with Travelers Group purchasing the entirety of Citicorp shares for $70 billion, and issuing 2.5 new Citigroup shares for each Citicorp share. Through this mechanism, existing shareholders of each company owned about half of the new firm.[6] While the new company maintained Citicorp's "Citi" brand in its name, it adopted Travelers' distinctive "red umbrella" as the new corporate logo, which was used until 2007.

The chairmen of both parent companies, John Reed and Sandy Weill respectively, were announced as co-chairmen and co-CEOs of the new company, Citigroup, Inc., although the vast difference in management styles between the two immediately presented question marks over the wisdom of such a setup.

The remaining provisions of the Glass–Steagall Act—enacted following the Great Depression—forbade banks to merge with insurance underwriters, and meant Citigroup had between two and five years to divest any prohibited assets. However, Weill stated at the time of the merger that they believed "that over that time the legislation will change...we have had enough discussions to believe this will not be a problem".[6] Indeed, the passing of the Gramm-Leach-Bliley Act in November 1999 vindicated Reed and Weill's views, opening the door to financial services conglomerates offering a mix of commercial banking, investment banking, insurance underwriting and brokerage.[38]

Joe Plumeri worked on the post-merger integration of the two companies, and was appointed CEO of Citibank North America by Weill and Reed.[39][40] He oversaw its network of 450 retail branches.[40][41][42] J. Paul Newsome, an analyst with CIBC Oppenheimer, said: "He's not the spit-and-polish executive many people expected. He's rough on the edges. But Citibank knows the bank as an institution is in trouble—it can't get away anymore with passive selling—and Plumeri has all the passion to throw a glass of cold water on the bank."[43] Investment News speculated that a successful tenure at Citibank might lead to a promotion to head up all of Citicorp.[43] Plumeri boosted the unit's earnings from $108 million to $415 million in one year, an increase of nearly 300%.[44][45][46] He unexpectedly retired from Citibank, however, in January 2000.[47][48]

In 2000, Citigroup acquired Associates First Capital Corporation, which, until 1989, had been owned by Gulf+Western (now part of National Amusements).[49] The Associates was widely criticized for predatory lending practices and Citi eventually settled with the Federal Trade Commission by agreeing to pay $240 million to customers who had been victims of a variety of predatory practices, including "flipping" mortgages, "packing" mortgages with optional credit insurance, and deceptive marketing practices.[50][51]

In 2001, Citigroup made additional acquisitions: European American Bank, in July, for $1.9 billion,[52] and Banamex (assisted by independent adviser, Windsor Capital Investments Limited) in August, for $12.5 billion.[53]

2002 Travelers spin off[edit]



The current logo for Travelers Companies

The company spun off its Travelers Property and Casualty insurance underwriting business in 2002.[54] The spin off was prompted by the insurance unit's drag on Citigroup stock price because Traveler's earnings were more seasonal and vulnerable to large disasters, particularly the September 11, 2001 attacks on the World Trade Center in downtown New York City. It was also difficult to sell this kind of insurance directly to customers since most industrial customers are accustomed to purchasing insurance through a broker.

The Travelers Property Casualty Corporation merged with The St. Paul Companies Inc. in 2004 forming The St. Paul Travelers Companies.[55] Citigroup retained the life insurance and annuities underwriting business; however, it sold those businesses to MetLife in 2005.[56] Citigroup still[when?] heavily sells all forms of insurance, but it no longer underwrites insurance.[citation needed]

In spite of their divesting Travelers Insurance, Citigroup retained Travelers' signature red umbrella logo as its own until February 2007, when Citigroup agreed to sell the logo back to St. Paul Travelers,[57] which renamed itself Travelers Companies. Citigroup also decided to adopt the corporate brand "Citi" for itself and virtually all its subsidiaries, except Primerica and Banamex.

January 2008 subprime mortgage crisis[edit]

Heavy exposure to troubled mortgages in the form of collateralized debt obligation (CDOs), compounded by poor risk management, led Citigroup into trouble as the subprime mortgage crisis worsened 2008. The company had used elaborate mathematical risk models which looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages. Trading head Thomas Maheras was close friends with senior risk officer David Bushnell, which undermined risk oversight.[58][59] As Treasury Secretary, Robert Rubin was said to be influential in lifting the regulations that allowed Travelers and Citicorp to merge in 1998. Then on the board of directors of Citigroup, Rubin and Charles Prince were said to be influential in pushing the company towards MBS and CDOs in the subprime mortgage market.

Starting in June 2006, Senior Vice President Richard M. Bowen III, the chief underwriter of Citigroup's Consumer Lending Group, began warning the board of directors about the extreme risks being taken on by the mortgage operation that could potentially result in massive losses. The group bought and sold $90 billion of residential mortgages annually. Bowen's responsibility was essentially to serve as the quality control supervisor ensuring the unit's creditworthiness. When Bowen first blew the whistle in 2006, 60% of the mortgages were defective. The amount of bad mortgages began increasing throughout 2007 and eventually exceeded 80% of the volume. Many of the mortgages were not only defective, but were fraudulent. Bowen attempted to rouse the board via weekly reports and other communications. On November 3, 2007, Bowen emailed Citigroup Chairman Robert Rubin and the bank's chief financial officer, head auditor and the chief risk management officer to again expose the risk and potential losses, claiming that the group's internal controls had broken down and requesting an outside investigation of his business unit. The subsequent investigation revealed that at the Consumer Lending Group had suffered a breakdown of internal controls since 2005. Regardless of the findings of the investigation, Bowen's charges were ignored, despite the fact that withholding such information from shareholders violated the Sarbanes–Oxley Act (SOX), which he had pointed out. Citigroup CEO Charles Prince signed a certification that the bank was in compliance with SOX despite Bowen revealing this wasn't so. Citigroup eventually stripped Bowen of most of his responsibilities and informing him that his physical presence was no longer required at the bank. The Financial Crisis Inquiry Commission asked him to testify about Citigroup's role in the mortgage crisis, and he did so, appearing as one of the first witnesses before the Commission in April 2010.[60][61]

As the crisis began to unfold, Citigroup announced on April 11, 2007, that it would eliminate 17,000 jobs, or about 5 percent of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock.[62] Even after securities and brokerage firm Bear Stearns ran into serious trouble in summer 2007, Citigroup decided the possibility of trouble with its CDO's was so tiny (less than 1/100 of 1%) that they excluded them from their risk analysis. With the crisis worsening, Citigroup announced on January 7, 2008 that it was considering cutting another 5 percent to 10 percent of its 327,000 member-workforce.[63][64]

November 2008, Collapse & US Government Intervention (part of the Global Financial Crisis)[edit]

By November 2008, Citigroup was insolvent, despite its receipt of $25 billion in tax-payer funded federal Troubled Asset Relief Program funds. On November 17, 2008, Citigroup announced plans for about 52,000 new job cuts, on top of 23,000 cuts already made during 2008 in a huge job cull resulting from four quarters of consecutive losses and reports that it was unlikely to be in profit again before 2010. The same day on Wall Street markets responded, with shares falling and dropping the company's market capitalization to $6 billion, down from $300 billion two years prior.[65] Eventually staff cuts totaled over 100,000 employees.[66] Its stock market value dropped to $20.5 billion, down from $244 billion two years earlier.[65] Shares of Citigroup common stock traded well below $1.00 on the New York Stock Exchange.

As a result, late in the evening on November 23, 2008, Citigroup and Federal regulators approved a plan to stabilize the company and forestall a further deterioration in the company's value. On November 24, 2008, the U.S. government announced a massive stimulus package for Citigroup designed to rescue the company from bankruptcy while giving the government a major say in its operations. A joint statement by the US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp announced: "With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."[67][68] The arrangement calls for the government to back about $306 billion in loans and securities and directly invest about $20 billion in the company. The Treasury would provide $20 billion in Troubled Asset Relief Program (TARP) funds in addition to $25 billion given in October. The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) would cover 90% of the losses on its $335 billion portfolio after Citigroup absorbed the first $29 billion in losses.[69] The assets remain on Citigroup's balance sheet; the technical term for this arrangement is ring fencing.

In return the bank would give Washington $27 billion of preferred shares and warrants to acquire stock. The government would obtain wide powers over banking operations. Citigroup agreed to try to modify mortgages, using standards set up by the FDIC after the collapse of IndyMac Bank, with the goal of keeping as many homeowners as possible in their houses. Executive salaries would be capped[70] As a condition of the federal assistance, Citigroup's dividend payment was reduced to one cent per share.

January–February 2009: Creation of Citi Holdings[edit]

On January 16, 2009, Citigroup announced its intention to reorganize itself into two operating units: Citicorp for its retail and institutional client business, and Citi Holdings for its brokerage and asset management.[71] Citigroup will continue to operate as a single company for the time being, but Citi Holdings managers will be tasked to "take advantage of value-enhancing disposition and combination opportunities as they emerge",[71] and eventual spin-offs or mergers involving either operating unit were not ruled out.[72] On February 27, 2009 Citigroup announced that the United States government would be taking a 36% equity stake in the company by converting $25 billion in emergency aid into common shares. Citigroup shares dropped 40% on the news.

On June 1, 2009, it was announced that Citigroup would be removed from the Dow Jones Industrial Average effective June 8, 2009, due to significant government ownership. Citigroup was replaced by Travelers Co.[73]

2010: Return to profitability, denationalization[edit]

In 2010, Citigroup achieved its first profitable year since 2007. It reported $10.6 billion in net profit, compared with a $1.6 billion loss in 2009.[74] Late in 2010, the government sold its remaining stock holding in the company, yielding an overall net profit to taxpayers of $12 billion.[75]

2012–2016: Federal Reserve stress tests[edit]

On March 13, 2012, the Federal Reserve reported Citigroup is one of the four financial institutions, out of 19 major banks, that have failed its stress tests. The tests make sure banks have enough capital to withstand huge losses in a financial crisis like one Citigroup faced in 2008 and early 2009 when it almost collapsed. The 2012 stress tests determine whether banks could withstand a financial crisis that has unemployment at 13 percent, stock prices to be cut in half, and home prices decreased by 21 percent from current levels.[76][77] According to Citi and the Federal Reserve stress test report, Citi failed the Fed stress tests due to Citi's high capital return plan and its international loans rated by the Fed to be at higher risk than its domestic American loans.[78][79][80][81] Citi gets half their revenues from its international businesses. In comparison, Bank Of America, which passed the stress test and did not ask for a capital return to investors, gets 78% of its revenue in the United States.[82]

On March 26, 2014, the Federal Reserve reported that Citigroup was one of the five financial institutions that had failed its stress tests, but that Citigroup had failed it again. Unlike in the failed stress test in 2012, the Fed failed Citigroup on qualitative concerns, which were left unresolved despite regulatory warnings, versus quantitative calculations. The report specifically states as quoted that Citigroup failed "to project revenues and losses under a stressful scenario for material parts of the firm's global operations and its ability to develop scenarios for its internal stress testing that adequately reflects its full range business activities and exposures." The Fed did not state the $400 million fraud at Oceanografia, which forced Citigroup to revise to lower earnings, as a reason.[83][84][85]

On March 11, 2015, Citi has passed its first CCAR test,[86] allowing it to raise its dividend to 5 cent a share and unveiling a plan for a $7.8 billions of stock repurchase.[87]

On June 23, 2016, Federal Reserve handed Citi a passing grade on its stress test the second time in a row, giving permission to triple its dividend to 16 cent a share and approving a $8.6 billion stock repurchase program ,[88]

2015 onwards[edit]

In May 2015, the bank announced it would be selling its margin foreign exchange business, including CitiFX Pro and TradeStream, to FXCM and Denmark’s SAXO Bank for an undisclosed amount.[89]

In July 2015, Citi agreed to sell its retail and commercial banking operations in Panama and Costa Rica to Canada's Bank of Nova Scotia (Scotiabank). The operations being sold include 27 branches serving approximately 250,000 clients in the two countries. Citi will continue to offer corporate and institutional banking and wealth management in Panama and Costa Rica.[90]

On March 2, 2015, Costco announced that Citigroup will become the exclusive issuer of Costco's credit cards and that Visa Inc. will replace American Express as the credit-card network for Costco’s stores starting on April 1, 2016. Costco will accept other Visa cards under the new agreement, as well.[91][92]

In April 2016 Citigroup quarterly profits were reported as falling by 27% compared to a year earlier. The same month Citi was given regulatory approval for its 'living will,' the bank's plans to shut down operations in the event of another financial crisis.[93]

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