A long article in the Sunday NYTimes, November 1, by Andrew Martin and Gretchen Morgenson tells the saga of Citigroup from it's origin as National City Bank early in the 20th century and its four near-death experiences and rescues by American taxpayers. Martin and Morgenson are skeptical that Citigroup will ever be able to repay the $45 billion in TARP funds handed to the company over the past year. Additionally, the FDIC has agreed to back $300 billion in soured assets on Citigroup's books.

Chris Whalen, editor of Institutional Risk Analyst, calls Citigroup "the queen of the zombie dance," referring to the group of financial institutions that the government has on life support. Whalen says "When I look at the whole picture, Citigroup is in the process of resolution. I continue to believe the wquity is worth zero and that the company will have to go to bondholders for some kind of money to make the bank stable."

Vikram Pandit, Citigroup's CEO said that he was confident that Citigroup was on the right course, focusing on global banking and shedding segments of the company--like insurance and the brokerage business--that aren't part of that mission...."Our distinctiveness is that we connnect the world better than anyone else," noting Citigroup's global reach, "We have a great capability of building a business around that. And we are in the process of building a culture around that."

Citigroup plans to undo much of what was done during a period insiders call "the lost decade," events including merging with Travelers Group in 1998 [Beware of companies with "Group" in their names!], and a huge, dizzying expansion of it's asset base. Citigroup plans to exit asset management, consumer lending such as residential and commercial real estate, auto and student loans.

Martin's and Morgenson's article delineates Citigroup's and Sanford Weil's key role in lobbying for repeal of the Glass Steagall Act which separated Main Street banking from Wall Street trading. Weill retired in 2003 after a series of embarrassing financial scandals tarnished his and the bank's reputation. He was replaced by Charles O. Prince III who continued Weill's deal-making strategy. In three-and-a-half years Citigroup bought five large mortgage lenders or loan servicers and four credit card lenders or portfolios. This buying spree was cut short by the NY Federal Reserve Bank following complaints by foreign regulators that Citigroup's risk management practices were dangerously lax.

From 2004 to 2008 Citigroup underwrote $70 billion in C.D.O.s but had to keep $57 billion of that amount on its own books when it couldn't find buyers, according to a class action suit by disgruntled Citigroup investors who contend that Citigroup's operations " had devolved into a Ponzi scheme where unsold portions of older C.D.O. securitizations were recycled as the asset base for new C.D.O. securitizations." The lawsuit claims that Citigroup executives engaged in various accounting gimmicks to conceal the bank's ownership of assets that eventually soured. Citigroup denies the charges.

The unfortunate truth is that the bank was managed horribly according to analysts and former insiders. "They just blew it," said one former Citigroup executive. "It's really hard to drive a the car if you don't have the headlights on."

Somebody is probably already working on a book about the rise and fall of Citigroup. In the meantime Martin's and Morgenson's long article linked below is worth reading in its entirety.

The above material is based on and was summarized and borrowed from their excellent article.

Disclaimer: I'm haven't been a fan of Citigroup since having a very bad experience with a Citigroup "Driver's Edge" credit card several years ago. I'd had the card for several years and never missed payment of my monthly balance in full until one of my payments was lost in the mail or for some reason didn't reach Citigroup on time. As a result of one missed payment I was notified by Citigroup that I was being charged 24% or some such outrageous interest rate on the unpaid balance (the first unpaid balance I'd ever had). I called Citigroup's customer service to complain and was told that nothing could be done; it was "company policy." I kept the card for several months until it was time to buy a new car and get my "driver's edge" cash reward. I canceled the card immediately after receiving a check for the promised reward and would never do business with Citigroup again. Citigroup was one of the leaders in sharp credit card tricks and traps such as universal default, teaser rates, and every exorbitant fee and interest rate they could get away with. I had a similar bad experience with Chase and would never do business with that bank either or any of the Wall Street banksters.

Texas banker Edward Speed has started a campaign urging Texans to boycott the big money center banks like Citigroup, Wells Fargo, and JPMorgan Chase in favor of small, local Texas banks and credit unions which have survived the economic crisis without putting their hands into the taxpayers' pockets. Works for me!. An article from the 11-1-09 NY Times on Mr. Speed's campaign is linked below.

Citigroup - 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.

Associates

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).

Biased research

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.

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.

Primerica

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.

Enron, and Parmalat

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.

Japan Private Banking Scandal 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.

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.

Citigroup Proprietary Government Bond Trading Scandal 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).

Brasil Telecom and Brazilian Pension Funds Citigroup, a major shareholder of Brasil Telecom through an investment partnership in Brazil, was implicated in charges revolving around a highly controversial deal executed with pension funds of Brazilian state-owned companies, by which these funds would have a put option against them for a value deemed far above arm's-length market levels. After public outcry in Brazil, the deal was partly annuled by a federal court and the matter is being investigated by a panel of Brazilian congresspeople, with Citibank's president in Brazil Mr. Gustavo Marin having been heard in October 2005.

Improper Assessment of Late Fees 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.

Source: Citigroup Encyclopedia