citibank: navigating through thick and thin

looking at the evolution and expansion from domestic retail/corporate banks into systematic important banks (SIB)

I wanted to talk about one of America’s oldest banks that have a long-standing history with the growth and downfall of the economy; Citi Bank. According to their historical timeline on their website, the bank is now 207 years old. To give a bit more background, Citibank has had numerous growths through the 19th century as they played an instrumental role in the iron/steel industry. Also, in the 20th century, they financed to growth America’s infrastructure and transportation. Citibank was actually one of the largest banks by 1990 as they developed a strategy to modernize banking to popularize teller machines and also establish the use of credit cards that eventually became part of Mastercard (Caplinger, 2017). CitiBank today is one of important systematic important banks (SIB).

However, Citibank became a larger conglomerate when they merged with Travelers an insurance company in 1998. This shouldn’t have been possible until the Glass-Steagall Act, but Citi saw the opportunity through the changing political environment. The Financial Services Modernization Act in 199 repealed a part of the Glass-Steal Act so the Federal Reserve approved of Citi not having to divest any assets from the merge with Traveler (Caplinger). The companies merged to enable them to market mutual funds and insurance to Citi’s customers. Since insurance has a broad range of customers, Citi would also be able to have the opportunity to expand their client base. 

 Until 2007, Citi had acquired more corporations to become one of the elite financial institutions. Citi’s strategy was to become a conglomerate that provided all-around services such as insurance, asset management and also could work as a hedge fund (Kandell). Little did they know there could be a possibility of a mortgage crisis and due to poor risk management, they were exposed the most to loans and subprime securities. This led to the biggest government bailout with Trouble asset relief program funds first with $25 billion, government backing about $305 billion in loans/securities, and another direct investment of $20 billion an additional TARP (TIME, 2008). Citi than shrunk in size and continued to concentrate on their retail banking and corporate investment banking strategies (Kandell, 2018). Although Citi has not been as great as their pre-crisis days, they have been doing well. Citi has been criticized for poor risk assessment and because they are aware, the current CEO Michael Corbat said he plans to be “very careful about allocating [their] capital and resources that generate the right returns for [their] investors” as they’ve done in the past. Citi has also been scaling down although they have twice as much capital they did before the crisis.