Citigroup

Citigroup Inc. {{nyse|C}} is one of the largest financial services company in the world. As of 2005 it is the third largest company in terms of market capitalization and the second largest in terms of assets. The formation of Citigroup was announced on April 7, 1998 through a merger of Citicorp and Travelers Group. It was the first US company to combine banking with insurance underwriting since the Great Depression. The company has over 275,000 employees and over 200 million customer accounts in 100 countries.

Business model

Citigroup and its predecessor companies use the "diversified financial services business model" first invented by Prudential in the late seventies. Simply put, this model attempts to conglomerate many types of finance companies, such as stock brokers, banks, insurance companies, and others. This is done because each of those businesses do better or worse at different times of the business cycle, and so owning all of them balances things out and creates in theory less earnings volatility. This is also done because customers usually use many different kinds of financial products and attempting to convince them to use more products from the same company sells more products more cheaply, compared to those separate companies strictly selling products on their own.

Related Topics:
Financial services - Business cycle

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During the era of Sandy Weill, much of Citigroup and predecessor's efforts were focused on acquisitions. Much of the efforts were focused in the stock brokerage and investment banking areas, and most of the acquisitions were of companies which had recently had problems and were selling at a low price. After the acquisition, the management team would usually engage in aggressive cost cutting to build up cash for the next deal.

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The present CEO, Chuck Prince, has said "the day of the transformative deal (merger) is over". This is thought to refer to mega deals like the Citicorp/Travelers merger, as Citigroup continues to acquire. The focus of the company though, is said to have changed to organic revenue growth, that is selling more products instead of focusing on acquisitions and cost cutting alone to increase profit.

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Citigroup's 2005 sale of the remainder of Travelers Insurance to MetLife was described by the press as the death knell of the bank-insurance cross-selling model. This is a false analysis though as Citigroup continues to cross sell insurance, it just doesn't underwrite it. This focus on selling almost all kinds of financial products, but not necessarily "manufacturing them", is also what prompted Citigroup to recently trade its mutual fund business to Legg Mason in return for more stockbrokers.

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