Citibank Fin620 Group

Project
Alana Brown, Raja Lahori, Clarence Hawkins
 2

Contents
Introduction:...............................................................................................................................................3
Overview.....................................................................................................................................................4
Monetary Policy, Regulatory Framework and Banking Practices.................................................................5
Analysis of Bank Strategy:...........................................................................................................................9
Conclusion:................................................................................................................................................10
Graphs:......................................................................................................................................................11
Additional Information:.............................................................................................................................20
Works Cited...............................................................................................................................................21

Introduction:

Historic Profile and Plan of Study

 3

Citigroup began its financial journey in 1812 with $2 million dollars of paid in capital. They

initially started their business to serve a group of New York merchants. (Citibank History, pg1). They

paid their first dividend in 1813.

“Citigroup is a global diversified financial services holding company trading on the NYSE that

was incorporated in 1988 in Delaware. It provides a broad range of financial services to consumer and

corporate customers through its three business segments: Citicorp, which consists of the company’s

regional consumer banking businesses and the institutional client group; Citi Holdings, which consists of

Citigroup’s brokerage and asset management and local consumer leading business. The third segment is

corporate/other. Citigroup has more than 200 million customer accounts and does business in more than

100 countries.” (Business and Company Resource Center)

According to the Citigroup website, their mission is “dedicated to finding solutions that preserve

homeownership and help mitigate the challenges faced by borrowers.” Their website also says their

current situation is one that is geared toward helping homeowners and protecting consumers.

“Since the beginning of the mortgage crisis in 2007, Citi has helped approximately 824,000

distressed homeowners, representing $98 billion in mortgage loans, in their efforts to avoid potential

foreclosure and remain in their homes through a variety of foreclosure prevention initiatives.” (Citicorp

website)

The purpose of this paper is to examine how Citigroup contributed to and was impacted by the

recent financial and economic crisis. We will begin with a industry overview and recent monetary policy,

regulatory framework, and banking practices followed by an analyses of Citigroup’s financial statements

and ratios. We will also analyze the profitability ratios and what they infer about the bank. We will then

conclude our examination by analyzing Citigroup’s strategy.

Overview
 4

Citigroup performs in the commercial banking industry. “The commercial banking industry was

among the first industries to develop in the United States. The banking industry is broad in scope and

complex in nature.” (Business and Company Resource Center)

According to the Business and Company Resource Center, commercial banks perform at least

eight major functions in the U.S. economy. First, banks facilitate the elastic credit system that is

necessary for economic progress and steady growth. Second, they allow the efficient transfer of money

between firms and individuals. Third, they encourage the pooling of saving, making these savings

available for lending. Fourth, banks extend credit to credit-worthy borrowers, increasing production and

capital investment. (BCRC)

“Fifth, banks facilitate the financing of foreign trade by converting various currencies. Sixth,

they act as trust administrators and advisors. Seventh, they aid in the safekeeping of valuables. Finally,

banks engage in brokering activities, buying and selling securities for customers.” (BCRC)

There have been several changes in technology in the banking industry since banking has come

about. According to BCRC, as the banking industry became more complex, banks around the world

began to adopt new technologies and automation. It began its technological process with automatic teller

machines, teller workstations, check processing equipment, and related software.

Banks have since then adopted great technologies for their firms such as online banking, bill pay

and mobile banking. Mobile banking is said to be one of the top ten strategies in the banking industry.

Monetary Policy, Regulatory Framework and Banking Practices

The use of monetary targeting came about less than 50 years ago. There are several approaches

the Fed uses when trying to control the money supply. The first is monetary targeting. According to our
 5

text, the advantage of this strategy is that it acts as an “immediate signal on achievement.” (Money,

Banking and Financial Markets, pg 474)

The next is inflation targeting. Its advantages include “simplicity and clarity of target, it does not

rely on stable money –inflation relationship, there is an increased accountability of the central bank and it

reduces the effects of inflation shocks.” (Money, Banking, and Financial Markets, pg 474)

The last is the implicit nominal anchor. Like inflation targeting, it doesn’t rely on stable money-

inflation relationships as well. The great thing about implicit nominal anchor is that it has proved to be

successful in the United States.

There are two types of policy instruments that the Fed uses: reserve aggregates and interest rates.

While choosing a policy for a day to day basis can be a hectic task, it is uncertain to tell whether a policy

is easy or tight.

“The Bank Act of 1935 allowed the Fed’s Board of Governors to exercise emergency power to

alter reserve requirements.” (Money, Banking, and Financial Markets, pg 487)

The liquidity ratios is the current ratio, which is gained by dividing the current assets by current

liabilities, this ratio compared to others help us determine the strengths and weaknesses of the banks. This

ratio tells us how many times the current assets are worth in terms of the current liabilities. For example if

the current ratio is five then it means that the current assets are worth five times the current liabilities,

which would mean the bank is financially stable. We are able to determine also from this data if an

institution is able to meet its short to long- term obligations.

Current assets can be converted into cash within a short period, normally not exceeding more

than a year. It usually includes cash and bank balances, investments in different securities, money

receivables, short-term loans and advances, etc.

Current liabilities are short-term obligations usually which the company has to meet within the

next one year. It includes all short-term borrowings repayable within one year, installments and interests

of term loans, deposits maturing within one year etc. 

 6

By looking at the banks financial statements this helped us determine what the banks numbers

were about and ascertain their strengths and weaknesses.

We also looked at the acid test or quick ratio to make help us make better-informed decisions.

This ratio only utilizes cash, bank balances, investments in different securities and money receivable are

treated as current assets.

Other helpful ratios we looked at were turnover ratios and profitability ratios to name a couple we

believe these ratios used helped our group prove and determine the banks overall status. By comparing

different financial ratios, we were able to compare the present performance of Citibank with its past

performance and with that of the industry as a whole.

We as a group looking at Citibank would have to say on a year-to-year basis the bank has been

doing well at improving their overall standing in the banking industry. This can be seen in the graphs

below. Within the industry, the Citibank has been definitely holding its own, though this bank did also

receive $25 billion in bail out money in October 2009.

Leverage ratio is risk analysis; it helps to measures a company's leverage. An example would be

gearing ratio “which is the long-term debt/capitalization ratio, which is calculated by taking the

company's long-term debt and dividing it by its long-term debt added to its preferred and common stock.”

(Farlex Financial Dictionary, 2009)

Some of the leverage ratios we chose to use and look at as a group to name a few, in order to

come to our conclusion as to how Citibank was holding its leverage in the industry we took a look at the

report from Standards and Poor’s as to how the industry as a whole was performing.
 7

12,000,000.0

10,000,000.0 9871527.16 9789994.13

8468778.52

8,000,000.0
7491508.76

6657742.78 6657742.78

6,000,000.0
Operating Revenues as an Industry
Operating Revenues as an Industry
Net Income as an Industry
Total Assets
4,000,000.0

2,000,000.0

617649.84 513885.48 629203.03 581682.89 477947.5

48118.1 72796.11 84359.93
0.0
-57167.15
2009 2008 2007 2006 2005

-2,000,000.0

Looking at the other banks in the industry Citibank’s leverage in the industry is consistent with

the norm. We have concluded the Citibank is on a good trend now because they have managed to reduce

the amount of debt that’s on their books and increase their deposits and returns to the on equity as seen in

the graphs. .
 8

The Citibank is adequately capitalized, this due partially to the fact Citibank not only holds

financial banking funds, but also holds physical and separate capital from that of its banking entity in

investments in real estate holdings and leasing.

Profitability helps us determine the status as far as how much they are earning, compared to its

expenses and other relevant costs incurred during a certain period. For Citibank, having a ratio higher

value or relatively the same to that of a competitor is a sign the company is on the right track.

The profitability ratios we chose to use are the stockholders equity and based on a year-by-year

account of the Citibank and its status we have concluded the capital ratios are affecting the profitability

ratios in a direct manner.

These profitability ratios for example is based on profit margin, return on assets and return on

equity. It is calculated by dividing annual earnings by its total assets, ROA is displayed as a percentage.

This may also be referred as return on investment. The formula for return on assets is net income/ total

assets.

After looking at the various ratios, we believe the ratios that were most suitable and helped us

determine the financial status of Citibank is the equity ratios. We chose these ratios because looking at the

NPA mortgages and Credit cards that have gone bad have had a direct impact on the market as a whole.

Standards and Poor’s states; that they “Will see credit quality (measured by delinquencies and net

charge-offs) as generally improving in 2010, compared with 2009, due to the improving macroeconomic

environment. According to data from the Federal Reserve Board, the credit card delinquency rate for

the top 100 banks in the US declined to 6.44% in the fourth quarter of 2009, from its peak of 6.78% in

the second quarter of 2009. Based on the same data, the credit card charge-off rate decreased to 9.74%,

from its peak of 10.15% in the third quarter of 2009. However, the delinquency and charge-off rates for

residential and commercial real estate for this group increased to 10.54% and 2.97%, respectively, in the

fourth quarter of 2009, from 10.08% and 2.68%, respectively, in the third quarter of 2009.
 9

For 2010, we think that credit card delinquencies and charge-offs will steadily decline as the

economy continues to gain strength. Mortgage delinquencies and charge-offs, which we believe will peak

this year, should benefit from government programs for homeowner assistance and foreclosure prevention

programs. However, if the housing market recovery falters or unemployment levels remain high in 2010,

we think credit quality will be hurt” (Standard and Poor’s), This transaction could increase the TCE of the

company from the fourth quarter level of $29.7 billion to as much as $81 billion, which assumes the

exchange of $27.5 billion of preferred securities, the maximum eligible under this transaction. Citi’s Tier

1 capital ratio is 11.9 percent as of December 31, 2008, and is among the highest of major banks. This

ratio is not impacted by this transaction) and the loan- loss reserve ratios and their trends we were able to

help us determine That Citibank is making the necessary moves to improve their standing in the banking

market and improve the rates of returns to it’s stockholders.

Analysis of Bank Strategy:

In the beginning, Citibank was about serving New York business merchants and have since

expanded not only nationally, but also globally. Citibank offers a wide range of financial services to its

consumers.

Citibank does expand its operations beyond its historical core lending activities due to the fact it

has other interest outside of its banking entity (real estate leasing) and are pursuing other business

strategies which somewhat, but it still is indirectly related to what the Citibank financial institution stands

for. Yet Citibank is still representing homeowners and helping their customers afford available housing.

The risk techniques of Citibank did change but in their favor. There are still many challenges the

bank faces today, with the way the industry is steady going up and down it is any one’s guess.

Citibank should continue to provide services to its clients and pay back the current Tarp monies

to the US department of treasury as soon as possible. In making this move the ratios would help the

organization to improve their bottom lines as well as improve the earning per share.
 10

Conclusion:

The industry and financial systems have a few key challenges: some are the economy, the

housing market and the job market. The banks still have to consider moral hazard and other related such

issues. While others are just pain consumer worry from the loss of jobs and the unemployment rates and

lack of real GDP output from the American manufacturing companies , coupled with a shrinking of the

world and how business is conducted.

 11

Graphs:

12

10

6
Citigroup Inc. C
Wells Fargo & Company (WFC)
4 U.S. Bancorp (USB)
JPMorgan Chase & Co. (JPM)

0
1 2 3 4 5 6 7 8
-2
 12

CitiBankTotal stockholders’ equity

180,000
160,000
152,700
140,000 141,630
120,000 119,632 CitiBankTotal stockholders’ equity
113,447 112,386
100,000 Linear (CitiBankTotal stockholders’
equity )
80,000
60,000
40,000
20,000
0
2009 2008 2007 2006 2005

CitiBankTotal assets
2500000
2187480
2000000
1856646 1938470 1884167

1500000 1493886 CitiBankTotal assets

Linear ( CitiBankTotal assets)

1000000

500000

0
2009 2008 2007 2006 2005
 13

CitiBank Long-term debt

450,000
427,112
400,000
364,019 359,593
350,000

300,000 288,494
CitiBank Long-term debt
250,000 Linear (CitiBank Long-term debt )
217,499
200,000

150,000

100,000

50,000

0
2009 2008 2007 2006 2005

2500.00%
22.2
2000.00%
18.7
1500.00%

1000.00%

500.00% CitiBank Return on common

stockholders’ equity
2.90% 18.80% 22.40% CitiBank Return on total
0.00% -9.40% -28.80% stockholders’ equity
-1.1
2009 2008 2007 2006 2005
-4 Linear (CitiBank Return on total
-500.00% stockholders’ equity )

-1000.00%

-1500.00%

-2000.00% -20.9

-2500.00%
 14

0
2009 2008 2007 2006 2005

-2,000 -2,258 -2,310

-4,000
CitiBank Net interest revenue
CitiBank Total revenues, net of
-6,000 interest expense
Linear (CitiBank Total revenues,
net of interest expense )
-8,000

-10,000
-10,556

-12,000

Citigroup’s net income

30,000
24,589
20,000 21,538

10,000
Citigroup’s net income
3,617
0 -1,606 Linear (Citigroup’s net income )
2009 2008 2007 2006 2005
-10,000

-20,000
-27,684
-30,000

-40,000
 15

CitiBank Total deposits

900,000
835,903 826,230
800,000 774,185
700,000 712,041
600,000 591,828
CitiBank Total deposits
500,000 Linear (CitiBank Total deposits )
400,000
300,000
200,000
100,000
0
2009 2008 2007 2006 2005

CitiBank Common stockholders’ equity

180,000
160,000
152,388
140,000
120,000 CitiBank Common stockholders’
113,447 118,632 equity
111,261
100,000 Linear (CitiBank Common
80,000 stockholders’ equity )
70,966
60,000
40,000
20,000
0
2009 2008 2007 2006 2005
 16

1.64598%

1.14310%

0.16535%
0 -0.08650% CitiBank Equity Capital to Assets

-1.42814%

0.02
1.24119%
0.01 1.04193% 1.08600%

0 0.51880% 0.43236%

0 0.00000% 0.00000%
2009 2008 -0.16832%2006
2007 2005 CitiBank Reserves to Assets
-0.01 CitiBank Secondary Reserves to
Assets
-0.96389% Linear (CitiBank Secondary
-0.01 Reserves to Assets )

-0.02

-0.02 -2.04151%

-0.03
 17

CitiBank Mandatorily redeemable securities of subsidiary

trusts
30,000

25,000
24,060 23,756

20,000 19,345 CitiBank Mandatorily redeemable

securities of subsidiary trusts
15,000

10,000 9,775
6,459
5,000

0
2009 2008 2007 2006 2005

CitiBank NIM
0.00000%
2009 2008 2007 2006 2005
-0.10000%

-0.20000% -0.19740%
-0.25474% CitiBank NIM
-0.30000% Linear (CitiBank NIM)

-0.40000%

-0.50000%

-0.60000%
-0.65812%
-0.70000%
 18

CitiBank Special Asset Pool

0
2009 2008 2007
-3,682 2006 2005
-5,000
-10,000
-15,000 CitiBank Special Asset Pool
-17,896 Linear (CitiBank Special Asset
-20,000 Pool )
-25,000
-30,000
-35,000
-40,000 -39,574
-45,000

CitiBank Tier 1 Capital

14.00%

12.00% 11.67% 11.92%

10.00%
8.59% 8.79% CitiBank Tier 1 Capital
8.00% Linear (CitiBank Tier 1 Capital )
7.12%
6.00%

4.00%

2.00%

0.00%
2009 2008 2007 2006 2005

Raw Data For Citibank

 19

  2009 2008 2007 2006 2005

           
$1,856,64 $1,938,47 $2,187,48 $1,884,16
CitiBankTotal assets 6 0 0 7 $1,493,886
  2009 2008 2007 2006 2005
CitiBank Total deposits 835,903 774,185 826,230 712,041 591,828
  2009 2008 2007 2006 2005
CitiBank Long-term debt 364,019 359,593 427,112 288,494 217,499
  2009 2008 2007 2006 2005
CitiBank Mandatorily redeemable securities of subsidiary trusts 19,345 24,060 23,756 9,775 6,459
  2009 2008 2007 2006 2005
CitiBank Common stockholders’ equity 152,388 70,966 113,447 118,632 111,261
  2009 2008 2007 2006 2005
CitiBankTotal stockholders’ equity 152,700 141,630 113,447 119,632 112,386
 
  2009 2008 2007 2006 2005
Citigroup’s net income -1,606 -27,684 3,617 21,538 24,589
  2009 2008 2007 2006 2005
CitiBank Net interest revenue -1,663 -2,680 -2,008    
CitiBank Total revenues, net of interest expense -10,556 -2,258 -2,310    
 
  2009 2008 2007 2006 2005
CitiBank Tier 1 Capital 11.67% 11.92% 7.12% 8.59% 8.79%
           
  2009 2008 2007 2006 2005
CitiBank Special Asset Pool -17,896 -39,574 -3,682  
           
  2009 2008 2007 2006 2005
CitiBank Liquidity Ratios          
CitiBank Reserves to Assets 1.04193% 1.24119% 1.08600% 0.51880% 0.43236%
CitiBank Secondary Reserves to Assets -0.96389% -2.04151% -0.16832% 0.00000% 0.00000%
 
  2009 2008 2007 2006 2005
CitiBank Leverage Ratios          
CitiBank Equity Capital to Assets -0.08650% -1.42814% 0.16535% 1.14310% 1.64598%
 
  2009 2008 2007 2006 2005
CitiBank Return on common stockholders’ equity -9.40% -28.80% 2.90% 18.80% 22.40%
CitiBank Return on total stockholders’ equity -4 -1.1 -20.9 18.7 22.2
 
  2009 2008 2007 2006 2005
CitiBank NIM -0.65812% -0.25474% -0.19740%  
 20

Additional Information:

**SPECIAL ASSET POOL

Special Asset Pool (SAP), which constituted approximately 28% of Citi Holdings by assets as of
December 31, 2009, is a portfolio of securities, loans and other
assets that Citigroup intends to actively reduce over time through asset sales and portfolio run-off. At
December 31, 2009, SAP had $154 billion of assets. SAP
assets have declined by $197 billion or 56% from peak levels in 2007 reflecting cumulative write-downs,
asset sales and portfolio run-off. Assets have been
reduced by $87 billion from year-ago levels. Approximately 60% of SAP assets are now accounted for on
an accrual basis, which has helped reduce income
volatility. (Citibank 2009 annual report)

**All Trading account assets and Trading account liabilities are reported
at their fair value, except for physical commodities inventory which is carried
at the lower of cost or market, with unrealized gains and losses recognized in
current income.
During 2009, Trading account assets decreased by $35 billion, or 9%,
due to a:
• $56 billion, or 49%, decrease in revaluation gains primarily consisting
of decreases in interest rate and foreign exchange contracts as well as a
decrease in netting agreements;
• $16 billion, or 30%, decrease in mortgage loan securities driven by
decreased agency and subprime debt;
• $20 billion, or 172%, increase in U.S. Treasury and federal agency securities;
• $15 billion, or 27%, increase in foreign government securities; and
• $7 billion, or 9%, increase in corporate and other debt securities. (Citibank 2009 Annual Report)

Works Cited

Business and Company Resource Center

 21

Citigroup. “About us”. Retrieved October 11, 2010 from www.citgroup.com/aboutus

Mishkin, F. Money, Banking, and Financial Markets. Second edition. Copyright 2010, 2007 Pearson

education inc. Retrieved November 12, 2010

Farlex Financial Dictionary. © 2009 Farlex, Inc.

(http://www.bizwiz.ca/leverage_ratio_calculation_formulas/leverage_ratios.html)

(http://www.fdic.gov/regulations/laws/bankdecisions/InvestActivity/CitiBank(DE).html), last updated

05/07/2004.

http://www.citigroup.com/citi/fin/data/ar09c_en.pdf (Citibank Annual report 2009)

Standard & Poor’s Website: http://www.standardandpoors.com ISSN 0196-4666 USPS No. 517-780