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The rise and fall of Citigroup

Analysis
By Tim Bowler
Business reporter, BBC News

Citi logo
Citi has been seen as too big to be allowed to fail

How the mighty are fallen. Citigroup, a bank which has been at the heart of America's finances for much of its history, is to be split in two.

in the end, the giant bank was brought to its knees by five quarterly losses in a row, the last one to the tune of $8.29bn (£5.6bn).

Two years ago Citigroup was worth $273bn. Now it is worth just £20bn.

It has been battered by the meltdown in sub-prime mortgages - made to people on low incomes or poor credit ratings.

Citi has lost heavily, and its share price has fallen from over $55 in 2006 to less than $4, on par with lows last seen in late November when the US Treasury announced a $45bn rescue plan accompanied by a $306bn guarantee for Citi's most risky loans.

Rescue plan

The risky loans portfolio will now be stripped out into a separate company, Citi Holdings, leaving the remaining Citicorp to get on with its traditional banking business without being held back.

Citigroup's share price

The restructuring follows last year's cost cutting exercise, which resulted in some 52,000 jobs being slashed, bringing the Citi workforce down to some 323,000 people.

The sheer number of people working for the giant bank gives a clue to why it was being rescued by the government.

Such a huge player in the financial system was seen by Washington policymakers as simply too big to be allowed to fail.

If the bank had been allowed to collapse, it could have caused financial havoc around the globe, seizing up fragile lending markets and causing untold losses among institutions holding debt and financial products backed by the company.

Citigroup's operations stretch around the globe with 200 million personal bank accounts in more than 100 countries.

In 2007, the bank's total revenues topped $159bn, not far off the GDP of Chile.

Recent creation

Citigroup itself as a unified institution is relatively new. It was formed in 1998 through the $140bn merger of the bank Citicorp and the financial conglomerate and insurance firm Travelers Group.

However, the history of the bank dates back to the earliest years of the United States, with the foundation of the City Bank of New York in 1812.

Ever since, the bank has played a central role in the financial history of the US.

By 1895 the National City Bank of New York, as it had become, was the largest bank in America.

In 1918 it was the first American bank with more than $1bn in assets, and by 1929 had become the world's biggest commercial bank.

In 1955 the bank altered its name to the First National City Bank of New York, and then in 1976 became Citibank - while its holding company changed its name to Citicorp.

In the 1970s, the bank was one of the first to pioneer the use of ATM machines, and by the 1990s it had become the world's largest issuer of credit cards and charge cards.

Mergers

Through a series of big mergers, Citi then built itself into a financial giant - offering customers everything from personal bank accounts and credit cards, to investment banking and wealth management.

The idea behind these mergers, with banks such as Mexico's Banamex and Poland's Bank Handlowy, was to create a financial group which would be big enough to deal with any crisis.

However, critics say that crucially Citi failed to control its expenses, and as it grew it became unwieldy and unfocused.

The losses that Citigroup built up as as result of the credit crisis have exposed some of the bank's problems that critics claim had been hidden by profits during the years of booming house prices.

Group profit soared from $17.8bn in 2003 to $21.5 billion in 2006.

But as the crisis intensified, Citigroup's fall has been equally dramatic, culminating in the $8.29bn loss during the October to December quarter in 2008.

Citigroup suffered a significant setback at the end of September, when its deal to buy regional bank Wachovia was trumped by an offer from rival Wells Fargo.

If the deal had gone through, it would have given Citigroup billions in additional deposits, boosting investors' confidence and possibly preventing the steep share price sell-off.

Without such a deal, Citigroup had few options but to go cap in hand to the US government.

Citigroup's share price



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