Citibank, Research Paper Example

Citibank is a company which represents the consumer banking operations of Citigroup; which is a financial service giant (“Citigroup”, 2010). Citibank has over 1,000 branches in over a dozen states in America. California and Texas are the largest markets for this bank, and there is also a significance in the number of customers in the Northeast, such as in Chicago and Miami. Citibank operates in about 3,000 offices globally in 40 different countries through the help of their affiliates (“Citigroup”, 2010). This has a focus on markets which can be found in Asia, Latin American and Europe. Citibank offers its clients standard banking fares; this can be seen in services such as deposit accounts, credit cards, loans to consumers and small business. This utilizes the breadth of all types of financial services by offering services such as investments and financial planning.

During November, 2008, Citibank made an announcement that they would discontinue the practice of hiking interest rates if a customer’s credit score declined (Mangla, 2008). This announcement followed a congressional hearing which placed pressure on credit-card companies to eliminate practices such as these as a universal default. This would allow the bank to raise your credit card rate if you were late on your payments or any other type of loan. Since March 2008, none of the five major issuers, which held control of 80% of the market, officially practiced universal default (Mangla, 2008). However, consumer’s advocates did take note that changing rates based on credit scores is still a common practice seen in major banking institutions such as Bank of America and Discover. This posed as a crisis to Citibank, which was followed by their decline in revenue seen in the year 2008 (Mangla, 2008). Macroeconomic policies affected the bank in a disproportionately large basis (Orcutt, 2008). Studies have confirmed that there is a large impact on macroeconomic factors on risks imposed on the banking sector; there is a definite link between macroeconomic conditions and individual banking. There is a pro-cyclical behavior seen in banking and periods of economic growth are associated with lower capital ratios (Mangla, 2008). Banks are seen to accumulate risks more rapidly in economically good times of a country and these risks are seen to manifest as an asset quality during deteriorating or subsequent recessions. Higher inflation rates are associated with higher capital ratios of banks; this simply means that inflation-rate induced economic uncertainty stimulates banks to reduce credit. This was seen affecting Citibank in early 2008, and it resounded until 2009 (Clift, 2010). The bank is now still picking itself up from the crisis which was posed. However, some studies suggest that it is not because of macroeconomic policies that the crisis of banks and investment institutions arose, it was in people who were generally not paying their loans. It has been suggested by the International Monetary Fund (IMF) that the macroeconomic policy be re-thought or re-evaluated to reduce extreme cyclical fluctuations (Clift, 2010).

Citibank’s headquarters are in New York, and holds over 200 million accounts. Citibank still stands as one of the world’s leading banks. However, due to financial problems, Citigroup received $20 billion from the U.S. Treasury starting in 2008, under the Troubled Asset Relief Program (TARP); this was done in exchange for preferred stock. Citigroup managed to pay their debts back by the end of 2009. The company reported revenues of $91.1 billion by then end of 2009, yet suffered a net loss of $ 1.6 billion (see Graph 2.). According to CEO, Vikram Pandit, the bank had made enormous progress in 2009 after their downfall the year before; he stated that: “It was our responsibility to get our own house in order. We greatly improved Citi’s capital strength, reduced the size and scope of the company, and refocused our business strategy to take advantage of our unmatched global network. We created Citi Holdings to rationalize non-strategic businesses, totally overhauled risk management, cut costs by over $13 billion annually, reduced headcount by 100,000, and reduced assets by $500 billion from peak levels” (qtd. “Citigroup”, 2010)

In an effort to focus more on its core banking services, Citigroup split itself up into two separate businesses (“Citigroup”, 2010). This was due to their suffering from a $90 billion write-down; this was announced by the bank in early 2009. This reorganization followed a rough year for the financial powerhouse. During the year 2008, the company announced that it would acquire the banking business of Wachovia in an FDIC-assisted transaction; however the bank was outbid by Wells Fargo (“Citigroup”, 2010). If they were successful, this would have given the bank substantial presence in the southeast with a price tag worth an excess of $2 billion.

The bank has now retrenched itself and placed more emphasis on retail banking; this has been one if it’s more stable segments throughout the years (“Citigroup”, 2010). Currently, the bank plans to sell its 80% stake in Student Loan Corporation as well as its private student loan portfolio in separate transactions to Discover Financial Services and Sallie Mae.

American Depository Receipts (ADRs) are for United States investors to buy and sell stocks outside the country easily (Orcutt, 2008). This can be seen linking to Citibank’s and macroeconomic events. Recent studies which were released Citibank Depository Receipts Services analyzed that investors reacted to macroeconomic events during the fall of the business cycle in the crisis situation in 2008 (Orcutt, 2008). This affected investments made in Citibank in global and local mutual investments. This is correlated with Citibank’s stock market performance, now performing very ordinarily in the United States.

However, even with the downfall of their stocks, and the decline in their Net Income and revenues since 2008, Citibank managed to restore their image after the crisis situation (Webber, 2010). Their image management became an essential part of their corporation particularly at this time. The ongoing financial crisis which the United States is undergoing has led several banks to failure, including Citibank. Because of this, there was no longer any confidence in banking systems (Webber, 2010). However, Citibank managed to make a come-back with its image restoration. It would not yet be safe to invest in stocks for Citibank at this time because of their ordinary performance. The stock markets right now for banking institutes are of high risk and can dramatically fluctuate. It would not be suggested that one would invest in Citibank’s stocks, or any bank for that matter.

References

Citigroup (2010). New York Job Source. Retrieeved from http://nyjobsource.com/citigroup.html

Clift, J. (2010). IMF Explores Contours of Future Macroeconomic Policy. IMF Survey Magazine. Retrieved from http://www.imf.org/external/pubs/ft/survey/so/2010/int021210a.htm.

Mangla, I.S. (2008). One Less Sneaky Credit-Card Policy. Business Source. 37(2); 3-5.

Orcutt, G.H. (2008). Consequences of U.S. monetary and fiscal policies. Canadian Economics Association. 29(1); 78-85.

Webber, M. (2010). Corporate Reputation Management: Citibank’s Use of Image Restoration Strategies During the U.S. Banking Crisis. Allied Academics International Internet Conference. 12(1); 126-127.