Citigroup’s Growth History
The growth history of Citigroup is worth understanding by investors, especially since it was set up by a commercial bank that used to be the largest commercial bank in the world.
Company profile
Citigroup was formed from the merger of Citigroup and the successor company of the former U.S. can maker (former Dow component), and it’s interesting that the U.S. can maker has ties to Citi. Under the leadership of former Wall Street investment giant Gerald Tsai, founder of Manhattan Fund, the American can maker diversified into financial services, changed its name to Primerica, and began selling industrial business.
This development was completed when Primarica merged with Sandy Weil’s Commercial Credit (which acquired the former), although the combined company took on the name of the acquiree. Primarica acquires Traveler Group and the company changes its name to Citigroup again.
It’s basically a fine-tuning of Citigroup in a “merger of equals”, in the process, Traveler Group combined Salomon Brothers and Smith Barney to try to merge them into the Salomon Smith Barney umbrella , which briefly acquired Salomon Brothers. Citigroup then sold the insurance company under the Traveller Group.
Citi’s History
Citigroup was the largest commercial bank in the United States from the 1980s to the 2000s. And has a wide range of franchises, including what was once the largest portfolio of consumer loans (mainly credit cards) in the United States, a large domestic corporate banking business, and an international banking business with a global distribution.
Citigroup has been plagued by bad debts in developing countries, especially in Latin America. Chairman Walter Wriston in the mid-1980s replaced credit analysis with the assertion that “the country will not go bankrupt”; the result was whether the company was going to focus on consumer banks or the dominant line of domestic commercial banks. It became blurred.
His successor, John Reed, has effectively built Citi for the future. Reed, an MIT graduate, got his start in the back office, using technology to build the way ATMs work for credit cards and positioning the bank as a whole for the 1990s and 21st century. Reed’s major failing was his initial difficulty dealing with the problems left by Walter Wriston and his former colleagues on corporate loans, and given the control of the corporate credit culture, he was able to be promoted to the chairmanship of Citi Holdings, an astonishing achievement. The company suggested that Walter Wriston pit the top three members of the new generation against each other, with Reed winning.
Citi, which was on the brink of bankruptcy in the early 1990s, regularly dipped below $10 a share, a quarter of its book value. Thanks to the timely injection of capital by Arab investor Prince A-Waeed bin Talal, he saved the company. In the second half of 1992 and during 1993, company stocks reflected this fact, similar to Buffett’s GEICO: both had undergone a major reversal, but this was too risky for the average investor.
Since the Fed raised interest rates seven times between 1994 and 1995, Citigroup and most other banks’ stocks, fell into investable ranges. In early 1995, Citigroup’s stock price was $39, almost its book value a year earlier. After adding the dividend, the stock price is also below the investment value. In 1995, Citi’s earnings growth was limited because the 1994 earnings were tax deductible. After accounting for the year’s after-tax earnings, Citigroup’s earnings per share in 1994, in particular, were only $5.25. This compares with 1995 earnings of $6 per share, which is a realistic basis for comparison.
In the early to mid-1990s, Citigroup merged with the Travelers Group, led by Sandy Weil, to form Citigroup, which was included in the Dow 30 Among the constituents, it also highlights the value of Citi’s franchise. In order to approve the merger, Congress had to repeal the Glass-Steagall Act of the 1930s, which stipulated that commercial and investment banks could not be part of the same business. Citigroup later merged a full-scale commercial bank and a large investment bank, Salomon Smith Barney. After the merger, the stock price has soared, and the stock price has exceeded the book value by more than 2 times.
Note: The repeal of the Glass-Steagall Act is a major event that has a very far-reaching impact in the financial world of the United States.
Buffett picked up Citi stocks
The P/E ratio is low, coupled with Buffett’s unique understanding and preference for the banking industry, result in Buffett’s company bought over 55 million shares of Citigroup in the first quarter of 2022.
Business and Valuation
Main business
The revenue performance of each segment in 2021 is as follows:
| BU’s revenue | Number ($ million) |
| Institutional Customer Group (ICG) | 43,887 -9.12% |
| ICG banking | 23,253 +16.29% |
| ICG – Investment bank | 7,513 |
| ICG – Trade | 9,444 |
| ICG – Corp bank loan | 2,291 |
| ICG – Private bank | 4,005 |
| ICG equity | 20,778 -11.29% |
| ICG equity – Fixed income | 13,720 |
| ICG equity – Stock market | 4,545 |
| ICG equity – Security service | 2,720 |
| Global Consumer Banking (GCB) | 17,481 -9.35% |
| GCB – Retail banking and wealth management | 4,211 |
| GCB – Credit card | 8,189 |
| GCB – North America reatil banking | 5,081 |
| Total revenue | 71.884 -4.79% |
2021 Financial Performance
| Index | Number ($ million) |
| Revenue | 71,884 -4.79% |
| Loan Loss Provision | (3,778) |
| Net income | 21,952 +98.71% |
| Market Capital | 92,650 |
| Book Value per Share | 92.21 |
| ROE | 11.9% |
| ROA | 0.94% |
| Loan | 651,312 -1% |
| Total asset | 2,291,413 |
| Total deposit | 1,317,230 |
| Long term debt | 254,374 |
Market valuation
| 2021 | JPMorgan Chase | Bank of America | Wells Fargo | Citigroup |
| Market capitalization ($ billion) | 361.68 | 299.15 | 167.88 | 98.82 |
| Share price | 123.03 | 37.13 | 44.16 | 50.1 |
| P/E | 9.13 | 10.58 | 9.18 | 5.91 |
| Dividend yield | 3.25% | 2.26% | 2.26% | 4.07% |
| Total asset ($ billion) | 3,743.567 | 3,169.495 | 1,948.068 | 2,291.413 |
| ROA | 1.3% | 0.9% | 0.9% | 0.9% |
| ROE | 19% | 11.6% | 10.4% | 11.9% |
There are signs of failure
Reverse stock split
Citigroup is one of the few well-known large listed companies in the U.S. that has executed ten shares and one share. This is what I mentioned in the last 5-6 of my book “The Rules of Super Growth Stocks Investing”. I used Citigroup to do it. A classic case of a reverse stock split, and a famously negative one.
Exit the Asian business
Citigroup decided a year ago to completely withdraw from consumer finance in many developing countries, as detailed in my previous blog post “What caused Citi to abandon its retail banking business in 13 countries“.
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- “What caused Citi to abandon its retail banking business in 13 countries“
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