Citigroup Inc. - Stocks

Instrument description

Citi Group is a world-famous investment bank that is based in New York, United States. Citi Group is often called ‘Citi’ Bank and included in the top four US banks, along with JPMorgan Chase, Wells Fargo, and Bank of America. Citi Group is a big global company that offers a wide range of financial services, and the company is divided into Citi Corp and Citi Holdings.

Citi Corp manages Global Consumer Banking and Institutional Clients Group, while Citi Holdings is focused on consumer finance, asset management, and special asset portfolios. Citi Group provides a wide assortment of financial products and services to ordinary consumers, big business corporations, government companies, and other institutions.

Citi Group is ranked the 3rd biggest bank in the US, and it is headquartered in New York. The company has almost 214,000 employees. The bank is listed as the ‘Systemically important financial institution,’ which means that the company is too big to fail. Citi Group was ranked 30 on the Fortune 500 in 2019. The company operates in nearly 200 countries and has 200 million active customer accounts. There are almost 2500 branches of Citi Bank in all the prominent cities of the world.

History of Citi Group

Citi Group was formed on October 8, 1998, as a result of a merger between two financial giants Citi Corp and Travelers Group. The deal is considered the biggest merger in the world and was worth $140 billion. The roots of Citi Group trace back to the formation of City Bank of New York in 1812, which was later called ‘Citi Bank.’

The City Bank of New York was chartered on June 16, 1812, with a market capitalization of $2 million, and the bank opened for business in September 1812. Samuel Osgood was named president of the bank. In 1865, the bank merged with the US National Banking system, and its name changed to ‘The National City Bank of New York’ (NCB). By 1985, NCB became the largest bank operating in the US.

In 1918, International Banking Corporation was acquired, which increased the foreign operations and services, and in 1919, NCB becomes the first US bank to reach $1 billion value in assets. In 1933, the Glass-Steagall Act was passed that forced NCB to sell its security division and cut down on financial services offerings. NCB bought the First National Bank of New York in 1955, and the name is changed to First National City Bank of New York.

In 1961, the bank launched a certificate of deposit (CD), and the name of the bank is shortened to First National City Bank in 1962. The credit card business was launched in 1965, and in 1968 a parent holding company is formed called First National City Corporation (FNCC), and the name of the holding company is termed Citi Corp in 1974.

The First National City Bank was renamed to Citibank N.A in 1976. Citi Corp posted a loss of $1.2 billion in 1987. A provision fund of $3 billion is reserved. In 1991, there was a major reshuffle and restructuring that resulted in $ 885 million loss, and for the first time since 1813, the shareholders do not get a quarterly dividend.

In 1998, in a historical event, Citi Corp was merged with popular Travelers Group Inc., which led to the formation of Citi Group Inc. In 1999, the Financial Services Modernization Act was passed, which allowed Citi Group to offer banking and insurance services. In 2000, Citi Group acquired Associates First Capital Corporation, which was a consumer finance company. In 2001, the Citi Group bought a famous Mexican retail bank called Grupo Financiero Banamex.

Citi Group faced a tremendous financial crisis due to the economic recession of 2008, and the company was saved from bankruptcy due to the involvement of the US government that took 36% equity in the firm and converted the $25 billion emergency assistance into common stock.

In 2009, Citi Group made the largest single share sale in US history by selling almost $21 billion of common shares and equity, which was vital to reduce the government equity from 36% to 27%. In 2010, Citi Group repaid the $25 billion to the US government, which sold its invested shares and earned a profit of $12 billion.

Current Business and Investment of Citi Group

Citi Group is a top-ranked US bank providing financial, financing, and investing services. The financial products and services include consumer banking and credit, securities brokerage, corporate and investment banking, wealth management, and trade and securities services.

Citi Group is structured in two categories which are Citi Corp and Citi Holdings. Citi Corp manages Consumer Banking and Institutional Clients Group.

Consumer Banking consists of

• Retail banking
• Credit cards
• Commercial banking
• Mortgages
• Retail services

Institutional Clients Group comprises of

• Citi Capital Markets Origination
• Corporate and investment banking
• Market and security services
• Treasury and trade services
• Private banking to individuals with a significant net worth

Citi Holdings overlooks US mortgages along with asset management, brokerage, consumer finance, and special asset portfolios.

Risk and Potential in Cisco Environment

Citi Bank is the main driving force of Citi Group and responsible for managing a wide range of financial products and services such as credit cards, mortgages, bank loans, insurances, and lines of credit. The secret of Citi Bank’s success is efficiently balancing both retail consumers and institutional service with the same financial tools for which the bank got worldwide fame and appreciation.

SWOT analysis allows Citi Group to benchmark its current performance and develop purposeful strategies for the future growth of the company. SWOT analysis of Citi Group is given by

• Strengths

Citi Group enjoys a strong brand name and worldwide fame in banking, investment, cash management, trade finance, and mortgages. The company offers variety of financial services that are made according to the requirements of individuals and big enterprises. There is a wide customer base, which reduces the risk. Over 15 million users use online services. Citi Group manages a network bigger than its competitors.

• Weaknesses

Citi Group depends heavily on the domestic US market for bigger revenues. The company also operates in nearly 200 countries, and there are 2 million accounts spread globally, which makes managing every single account quite challenging and complicated. Citi Group is said to have weak consumer finance service as compared to its competitors.

• Opportunities

Citi Group has a wonderful opportunity to diversify its financial products and services and expand business in emerging markets. The young population, growing middle class, and economical labor rates are driving the growth of the company in emerging markets.

• Threats

The changing government rules and regulations, along with economic shifts, are the main cause of concern for Citi Group. The company also faces tough competition in both domestic and international financial markets. The rival brands of Citi Group include Wells Fargo, Bank of America, JPMorgan Chase, Standard Chartered, Royal Bank of Scotland, and BNP Paribas. Political instability and market volatility are two factors when expanding business in emerging economies.

Stock Analysis of Citi Group

Citi Group is listed and actively trades on the New York Stock Exchange with the ticker symbols ‘C.’ The company is listed under the ‘Finance’ Sector, and the industry is ‘Financial Conglomerate.’ Citi Group is also an active member of other indices that include the S&P Index.

The all-time high share price of Citi Group was $588.80 on August 28, 2000, and the average price in the last 52 weeks is $62.28.

The share price of Citi Group increased by 47% in 2019, which also meant that investing in the bank’s stock will give an excellent dividend to the shareholders. The Citi Group posted significant earnings in the fourth quarter of 2019.

In 2020, Citi Group's stock value is considerably impacted due to Coronavirus pandemic and rising political tensions in the US. The shares traded marginally well in the second quarter, and the company decided to keep the dividend payments at the current level for the third quarter. The investment banking division that manages debt and stock issuances saw record earnings in more than a decade.

The earnings per share (EPS) was below expected in the second quarter due to the Covid-19 situation. Citi Group has in store a significant amount of cash in reserve like other big banks to cover its credit losses. The spending reduced, which affected the global consumer banking services. The equity trading revenue fell while the fixed-income trading revenue increased.

In the Asian region, Citi Group faces a reduction in revenue generation due to travel bans and little consumer activity. The Federal Reserve Bank of the US also called ‘Fed’ cut down the rates to allow smooth sailing for the economy, but low rates decrease the profit of banks. The Fed asked the banks to stop dividend buybacks and cap the dividend payments. Analysts expect a 20% decrease in earnings of Citi Group in 2020.

The share price of Citi Group fell in February and March 2020 as the Coronavirus cases peaked, and in April, the stocks bottom out. The share price jumped in May and early June as businesses started to reopen and Covid-19 restrictions were relaxed. Investors should know that buying shares of a bank is always tricky as banks hardly perform superbly even when the markets are stable.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.