citigroup paper[1]
TRANSCRIPT
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Citibank Fin620 Group
ProjectAlana Brown, Raja Lahori, Clarence Hawkins
11/22/2010
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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
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Introduction:
Historic Profile and Plan of Study
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 companys
regional consumer banking businesses and the institutional client group; Citi Holdings, which consists of
Citigroups 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 Citigroups 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 Citigroups strategy.
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Overview
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.
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Monetary Policy, Regulatory Framework and Banking PracticesThe 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
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 doesnt 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 Feds 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.
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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.
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 ratioto 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 Poors as to how the industry as a whole was performing.
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Looking at the other banks in the industry Citibanks 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 thats on their books and increase their deposits and returns to the on equity as seen in
the graphs. .
617,649.8 513,885.5 629,203.0 581,682.9 477,947.5
-57,167.2
48,118.1 72,796.1 84,359.9
9,789,994.19,871,527.2
8,468,778.5
6,657,742.8
7,491,508.8
6,657,742.8
-2,000,000.0
0.0
2,000,000.0
4,000,000.0
6,000,000.0
8,000,000.0
10,000,000.0
12,000,000.0
2009 2008 2007 2006 2005
Operating Revenues as an Industry
Operating Revenues as an Industry
Net Income as an Industry
Total Assets
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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 Poorsstates; 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 of6.78% 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.
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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 Poors), 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. Citis 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 its 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 ones 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.
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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.
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Graphs:
-20000
0
20000
40000
60000
80000
100000
120000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Citigroup Inc. C
Wells Fargo & Company (WFC)
U.S. Bancorp (USB)
JPMorgan Chase & Co. (JPM)
**This table gives an indication of how Citigroup Inc.
stands in key respects compared with companies in the Money Center Banks Industry
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152,700141,630
113,447 119,632 112,386
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2009 2008 2007 2006 2005
CitiBankTotal stockholders equity
CitiBankTotal stockholders
equity
Linear (CitiBankTotal
stockholders equity )
$1,856,646$1,938,470
$2,187,480
$1,884,167
$1,493,886
0
500000
1000000
1500000
2000000
2500000
2009 2008 2007 2006 2005
CitiBankTotalassets
CitiBankTotal assets
Linear ( CitiBankTotal assets)
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364,019 359,593
427,112
288,494
217,499
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2009 2008 2007 2006 2005
CitiBank Long-termdebt
CitiBank Long-term debt
Linear (CitiBank Long-term
debt )
-9.40% -28.80% 2.90% 18.80% 22.40%
-4
-1.1
-20.9
18.7
22.2
-2500.00%
-2000.00%
-1500.00%
-1000.00%
-500.00%
0.00%
500.00%
1000.00%
1500.00%
2000.00%
2500.00%
2009 2008 2007 2006 2005
CitiBank Return on commonstockholders equity
CitiBank Return on total
stockholders equity
Linear (CitiBank Return on
total stockholders equity )
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-10,556
-2,258 -2,310
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
2009 2008 2007 2006 2005
CitiBank Net interest revenue
CitiBank Total revenues, net
of interest expense
Linear (CitiBank Total
revenues, net of interest
expense )
-1,606
-27,684
3,617
21,53824,589
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
2009 2008 2007 2006 2005
Citigroups netincome
Citigroups net income
Linear (Citigroups net
income )
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835,903774,185
826,230
712,041
591,828
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
2009 2008 2007 2006 2005
CitiBankTotaldeposits
CitiBank Total deposits
Linear (CitiBank Total
deposits )
152,388
70,966
113,447 118,632 111,261
0
20,000
40,000
6
0,000
80,000
100,000
120,000
140,000
160,000
180,000
2009 2008 2007 2006 2005
CitiBankCommon stockholders equity
CitiBank Common
stockholders equity
Linear (CitiBank Common
stockholders equity )
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-0.08650%
-1.42814%
0.16535%
1.14310%
1.64598%
-0.02
-0.015
-0.01
-0.005
0
0.005
0.01
0.015
0.02
2009 2008 2007 2006 2005
CitiBank Leverage Ratios
CitiBank Equity Capital to
Assets
1.04193%1.24119%
1.08600%
0.51880% 0.43236%
-0.96389%
-2.04151%
-0.16832%0.00000% 0.00000%
-0.025
-0.02
-0.015
-0.01
-0.005
0
0.005
0.01
0.015
2009 2008 2007 2006 2005
CitiBank Liquidity Ratios
CitiBank Reserves to Assets
CitiBank Secondary Reserves
to Assets
Linear (CitiBank SecondaryReserves to Assets )
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19,345
24,060 23,756
9,775
6,459
0
5,000
10,000
15,000
20,000
25,000
30,000
2009 2008 2007 2006 2005
CitiBank Mandatorilyredeemable securities of
subsidiarytrusts
CitiBank Mandatorily
redeemable securities of
subsidiary trusts
-0.65812%
-0.25474%-0.19740%
-0.80000%
-0.60000%
-0.40000%
-0.20000%
0.00000%
0.20000%
0.40000%
2009 2008 2007 2006 2005
CitiBank NIM
CitiBank NIM
Linear (CitiBank NIM)
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-17,896
-39,574
-3,682
-45,000
-40,000
-35,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
2009 2008 2007 2006 2005
CitiBank Special Asset Pool
CitiBank Special Asset Pool
Linear (CitiBank Special Asset
Pool )
11.67% 11.92%
7.12%
8.59% 8.79%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2009 2008 2007 2006 2005
CitiBankTier 1 Capital
CitiBank Tier 1 Capital
Linear (CitiBank Tier 1 Capital )
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Data ForCitibank
2009 2008 2007 2006
BankTotal assets $1,856,646 $1,938,470 $2,187,480 $1,884,167 $1,
2009 2008 2007 2006
Bank Total deposits 835,903 774,185 826,230 712,041
2009 2008 2007 2006
Bank Long-term debt 364,019 359,593 427,112 288,494
2009 2008 2007 2006
Bank Mandatorily redeemable securities of subsidiary trusts 19,345 24,060 23,756 9,775
2009 2008 2007 2006
ank Common stockholders equity 152,388 70,966 113,447 118,632
2009 2008 2007 2006
ankTotal stockholders equity 152,700 141,630 113,447 119,632
2009 2008 2007 2006
roups net income -1,606 -27,684 3,617 21,538
2009 2008 2007 2006
Bank Net interest revenue -1,663 -2,680 -2,008
ank Total revenues, net of interest expense -10,556 -2,258 -2,310
2009 2008 2007 2006
Bank Tier 1 Capital 11.67% 11.92% 7.12% 8.59%
2009 2008 2007 2006
Bank Special Asset Pool -17,896 -39,574 -3,682
2009 2008 2007 2006
Bank Liquidity Ratios
ank Reserves to Assets 1.04193% 1.24119% 1.08600% 0.51880% 0.
Bank Secondary Reserves to Assets -0.96389% -2.04151% -0.16832% 0.00000% 0.
2009 2008 2007 2006
Bank Leverage Ratios
Bank Equity Capital to Assets -0.086
50% -1.42814% 0.16
535% 1.14310% 1.
2009 2008 2007 2006
ank Return on common stockholders equity -9.40% -28.80% 2.90% 18.80%
ank Return on total stockholders equity -4 -1.1 -20.9 18.7
2009 2008 2007 2006
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Additional
Information:
**SPECIAL ASSET POOL
Special Asset Pool (SAP), which constituted approximately 28% of Citi Holdings by assets as ofDecember 31, 2009, is a portfolio of securities, loans and otherassets that Citigroup intends to actively reduce over time through asset sales and portfolio run-off. AtDecember 31, 2009, SAPhad $154 billion of assets. SAPassets have declined by $197 billion or 56% from peak levels in 2007 reflecting cumulative write-downs,asset sales and portfolio run-off. Assets have beenreduced by $87 billion from year-ago levels. Approximately 60% ofSAPassets are now accounted for onan accrual basis, which has helped reduce income
volatility. (Citibank 2009 annual report)
**All Trading account assets and Trading account liabilities are reportedat their fair value, except for physical commodities inventory which is carriedat the lower of cost or market, with unrealized gains and losses recognized incurrent income.During 2009, Trading account assets decreased by $35 billion, or 9%,due to a: $56 billion, or 49%, decrease in revaluation gains primarily consistingof decreases in interest rate and foreign exchange contracts as well as adecrease in netting agreements;
$16 billion, or 30%, decrease in mortgage loan securities driven bydecreased 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)
Bank NIM -0.65812% -0.25474% -0.19740%
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Works Cited
Business and Company Resource Center
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 & Poors Website: http://www.standardandpoors.comISSN 0196-4666 USPS No. 517-780