Citigroup Inc.

I

INTRODUCTION
Citigroup Inc., world’s leading financial services firm. Formerly known as Citicorp, the company merged with Travelers Group, an insurance, brokerage, and banking company, in 1998 to form a single company called Citigroup. It is the holding company for Citibank, one of the biggest banks in the United States and the world’s largest issuer of bank credit cards. Citibank is a global, full-service banking company that provides corporate and personal financial services in more than 100 countries and territories.
Citigroup’s other subsidiaries include brokerage firm Smith Barney and Primerica Financial Services, which offers life insurance, mutual funds, and consumer loans. Citigroup is based in New York City.
II

EARLY HISTORY
Citibank traces its roots to the first bank to be chartered (authorized) by the federal government, the Bank of the United States, founded in Philadelphia, Pennsylvania, in 1791. When the federal government did not renew the bank's charter in 1811, Colonel Samuel Osgood took control of the New York branch and reorganized it as the City Bank of New York. The bank operated primarily as a source of credit for merchants.
To create a market for government bonds to raise money for the American Civil War (1861-1865), the U.S. Congress established the first national banking system in 1863. City Bank acquired a national charter and became the National City Bank of New York (NCB). Under the leadership of James Stillman in the late 1890s, NCB became a prime lender to big corporations.
By 1909 NCB was the nation’s largest bank, with over $300 million in assets. In 1914, after the Federal Reserve Act allowed federally chartered banks to open branches overseas, NCB opened an office in Buenos Aires, Argentina, becoming the first national U.S. bank with a foreign department. In 1928 the bank became the first commercial bank to offer personal loans. At the time, commercial banks did most of their business with corporations and government agencies, and savings banks handled the consumer market.
In 1955 NCB merged with the First National Bank of New York and became the First National City Bank of New York. The new bank became known as Citibank, based on the designation NCB had chosen as its telegraph address in 1866. The name became official in 1974. Citibank pioneered the use by banks of holding companies (corporations that exist only to hold the shares of another company) in order to expand nonbanking activities, creating First National City Corporation in 1967. It was renamed Citicorp in 1974.
III

INNOVATION AND EXPANSION
In 1961, to compete with government bonds, Citibank invented the certificate of deposit (CD), a form of savings account that pays a higher rate of interest in exchange for a longer time commitment by the investor. In the 1970s Citibank became a leader in issuing Visa and MasterCard credit cards. By 1980 it had issued cards to 6 million people in the United States. That same year, the company moved its credit card operations to South Dakota, where state law allows banks to charge a higher rate of interest than New York state law.
In 1981 Citibank surpassed Bank of America (present-day Bank of America Corporation) as the largest U.S. bank. However, during the late 1980s Citibank reported billions of dollars in losses due to loans to developing countries and the economic downturn of the commercial real estate market in the United States. The revenues from Citibank’s many foreign franchises helped the company quickly regain profitability, and it remained the largest U.S. bank into the 1990s.
The 1996 merger of Chase Manhattan Corporation and Chemical Bank Corporation, both of New York, unseated Citibank as the largest bank in the United States. That same year, the United States Department of Justice (DOJ) began investigating Citibank’s involvement with the brother of former Mexican president Carlos Salinas de Gotari. In 1995 the Mexican government charged Raul Salinas with “illicit enrichment” after tracing numerous overseas accounts to him. The DOJ sought to determine whether Citibank violated U.S. money-laundering laws by helping Salinas move nearly $80 million from accounts in Mexico to Switzerland. The United States Government Accounting Office reported in 1998 that Citibank violated its internal regulations when it failed to run a background check on Salinas and did not verify the source of Salinas’s money.
IV

RECENT DEVELOPMENTS
In 1998 Citicorp announced plans to merge with Travelers Group to create a $700 billion company (based on assets) called Citigroup. Travelers Group, founded in 1864, was the first company in the United States to sell accident insurance. It later offered life insurance, annuities, liability, and, in 1897, the first auto insurance policies. In the late 1970s and early 1980s the company started to acquire financial services firms. In 1993 entrepreneur Sanford Weill bought Travelers Group and made it the holding company for his other firms, which included Commercial Credit, Primerica Financial Services, and Smith Barney. He retained the Travelers Group name and its red-umbrella logo. In 1997 Travelers Group’s Smith Barney merged with investment firm Salomon Brothers to create Salomon Smith Barney. The division later reverted to the name Smith Barney.
Federal regulators approved the consolidation of Citicorp and Travelers Group, valued at approximately $70 billion when announced, in 1998. The merger gave each company’s shareholders 50 percent of the combined enterprise. The merger was largely a failure, however, and in 2002 the company decided to spin off one of the principal components of the deal, Travelers Property Casualty Corp.
In 2003 Citigroup faced an investigation by the New York State attorney general into allegations that its stock analysts issued fraudulent reports on companies in an effort to gain their investment banking business. In a settlement the company agreed to pay a $400 million fine and to separate its stock research from its investment banking business. In addition, one of its former stock analysts was banned from the securities business for life.
In 2005 Citigroup announced that it would spin off another component of the Travelers Group by selling Travelers Life & Annuity to the insurance giant MetLife Inc. for about $11.5 billion. The sale would make MetLife the largest individual life insurer in North America. As part of the deal, MetLife agreed to make some of its products available through Citigroup distribution channels, such as Smith Barney and Citibank branches.

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