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.

Scandals

Citigroup has been involved in several scandals. Some of these are in specific businesses and are shared amongst other businesses within that industry, while some result from a conflict or collusion between different divisions of Citigroup. This second type of scandal have caused some to call into question the "financial supermarket" aspect of Citigroup.

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Associates

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The first major scandal of Citigroup was when it acquired the largest Consumer Finance company Associates First Capital in 2000. Associates was already under attack for what were called "predatory lending" practices, specifically the selling of single premium credit insurance. Upon being acquired the same attacks were turned towards Citigroup, who stopped the practice of selling the single premium credit insurance, and instituted other changes. In the end the company was fined for the former practices. The present combined consumer finance division, called CitiFinancial continues to share in the general controversy over consumer finance. In May 2004, CitiFinancial was fined $70 million by the U.S. Federal Reserve, for continued predatory lending (described in detail in Inner City Press' Weekly Citigroup Watch Report).

Related Topics:
Consumer Finance - Associates First Capital - Predatory lending - Credit insurance

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Biased research

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The next major scandal was the accusation that Citigroup and other investment banks had struck secret deals with companies that said that the bank's stock research division would rate that company a "Buy" if it would do investment banking with that division. Implicated by that scandal was analyst Jack Grubman. This scandal led to some wondering if the financial services conglomerate concept would lead to conflicts of interest such as this. The premise of this question however, is considered by some to be somewhat flawed insofar as research companies have almost always been owned by investment banks, even before the repeal of Glass-Steagal. The firm eventually paid the largest fine in the "global settlement" with the state, resulting from conflicts of interest between research and investment banking at Salomon Smith Barney.

Related Topics:
Stock research - Investment banking - Analyst - Jack Grubman - Global settlement

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To help put investors at ease, Citigroup hired one of its most outspoken critics, Sallie Krawcheck, to head Smith Barney (now a pure stock brokerage division), which was separated from the investment bank within the corporate structure. It dropped the "Salomon" from the name, as this name historically denoted investment banking.

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Primerica

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Primerica is now the brand name given to Citigroup's multi-level-marketing insurance and other financial services sales force. This division was formerly known as A L Williams. Critics call it a cult, or criticize its sales practices. Historically A L Williams was the major force in popularizing Term Life Insurance. See the Primerica article for more details.

Related Topics:
Primerica - Term Life Insurance

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Enron, and Parmalat

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Citigroup was also accused of helping Enron and other companies hide their losses by loaning money to those companies in a special way that would reduce liabilities visible on the balance sheet. In May 2004 the company agreed to pay $2.65 billion, or $1.64 billion after tax, to settle a class action lawsuit brought on behalf of purchasers of WorldCom securities.

Related Topics:
Enron - Balance sheet - After tax - Class action - Lawsuit

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Japan Private Banking Scandal

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Citigroup removed three senior executives in the wake of a banking scandal in Japan. The scandal involved the Private Bank, the division that deals with very wealthy customers. It was alleged that the Private Bank failed to follow certain anti-money laundering procedures, that it used deceptive sales tactics, and that it assisted a customer in doing transactions which disrupted the financial markets or were fraudulent. This caused the Japanese regulators to shut down the Private Bank.

Related Topics:
Scandal - Japan - Private Bank

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Deryck Maughan, a Citigroup vice chairman and head of Citigroup International, Thomas W. Jones, chairman and chief executive of the global investment management division, and Peter K. Scaturro, head of Citi's private bank, left the company. Maughan had been with Citigroup and its predecessor Salomon Brothers since 1983. Jones and Scaturro were both members of the Citigroup management committee. A memo from Chief Executive Charles Prince said that Citigroup President Robert B. Willumstad would take charge of the businesses run by the three departing executives.

Related Topics:
Deryck Maughan - Thomas W. Jones - Peter K. Scaturro - 1983 - Chief Executive - Charles Prince - President - Robert B. Willumstad

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Citigroup Proprietary Government Bond Trading Scandal

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Citigroup was critized by the European Financial Governmence institutes for disrupting the European bond market by rapidly selling ?11 billion worth of bonds on August 2 2004 on the MTS Group trading platform, driving down the price, and then buying it back at cheaper prices. An investigation is pending. Relatedly, the U.S. Federal Reserve refused to rule on Citigroup's application to acquire First American Bank in Texas, from September 2004 through March 2005 (described in detail in Inner City Press' Weekly Citigroup Watch Report).

Related Topics:
European Financial Governmence - Bond market - August 2 - 2004 - MTS Group

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Improper Assessment of Late Fees

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Also in 2001 Citibank settled a lawsuit for improperly assessing late fees. The class action lawsuit was for 45 million dollars. Following this Citibank lobbied in Congress, to pass legislation that would limit class action lawsuits to 5 million dollars unless they were initiated on a federal level (Class Action Fairness Act of 2005). Many consumer advocate websites report that Citibank is still improperly assessing late fees.

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