Citigroup Overview: 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
Citigroup made an offer to acquire only the banking operations of troubled Wachovia on September 29, 2008 for $2.1 billion plus FDIC guarantees against loan losses beyond a stated level. However, on October 3 Wells Fargo made a $15.1 billion bid for the entire firm, with no FDIC guarantees. The Wells Fargo deal passed its final regulatory hurdle on October 12, 2008, with approval by the Federal Reserve. By this time, after a week of steep stock market declines, the value of the all-stock Wells Fargo offer had fallen to $11.7 billion.
Size: The firm is among the industry’s largest, across multiple dimensions, including (as of June, 2008, except as noted):
- Employees = 325,000
- Number of Client Accounts = 200 million
- Assets = $2.2 trillion
- Presence in 100 Countries
Morgan Stanley Smith Barney: On January 13, 2009, Citigroup announced that its Smith Barney unit would become part of a joint venture with Morgan Stanley, in return for a $2.7 billion payment from the latter, which will own a 51% stake. The venture will be called Morgan Stanley Smith Barney. Management has a goal of reducing expenses by $1.1 billion, or 15% (financial advisor compensation is excluded from the calculation). Key combined metrics on this joint venture are:
- Financial advisors = 22,559
- Worldwide offices = over 1,000
- Client assets = $1.7 trillion
- Client households = 6.8 million
The joint venture is a temporary measure until Morgan Stanley can raise the funds to purchase Smith Barney in its entirety from Citigroup.
Positives: The firm is a multinational giant with diverse lines of business and varied career opportunities. Its principal predecessor firm is long-time international banking leader Citibank, which acquired long-time Wall Street leaders Smith Barney and Salomon Brothers. The securities business of Citigroup operates under the Citi Smith Barney name.
After receiving an initial $25 billion equity infusion from the Treasury Department as part of the $700 billion financial rescue package (TARP), Citigroup got another $20 billion on November 24, 2008. Additionally, the FDIC will absorb some loan losses and it will help to restructure nonperforming mortgage loans according to methodologies it is using successfully with clients of failed IndyMac bank. All this will solidify Citigroup's financial position.
Negatives: Citigroup is yet another financial services firm still suffering losses from the mortgage and fixed income securities markets. Total employment has contracted from 374,000 at the end of 2007 to 325,000 (a decline of 13%).
Moreover, a massive force reduction of 53,000 employees has been announced in response to 3Q 2008 losses. The layoffs could reach as high as 75,000 according to some reports. This cut is to be achieved partly through the sale of business units (like Citigroup's banking operations in Germany) and partly through layoffs. Some analysts have complained that the company has been grossly overstaffed, and that this is a long-overdue move. Nonetheless, from a prospective employee's perspective, this is a company in turmoil, whose staff is bound to be under great stress and whose management does not seem to be inspiring confidence either internally or externally.
The spinoff of Smith Barney to Morgan Stanley has resulted in the prices of Citigroup's securities being battered in the immediate aftermath. Citigroup is selling its most profitable division in what appears to be a desperate short-term effort to raise cash.
