On the brink: Is Citigroup too large to fail?
Filed under: Company News, Columns, Economy
On April 7, 1998, banking behemoth Citicorp joined financial giant Travelers Group in one of the largest mergers in history. The offspring: Financial services company Citigroup (C), which boasts one of the world's largest financial-services network. Citigroup operates its four categories -- Global Cards, Consumer Banking, Institutional Clients Group, and Wealth Management -- in North America, Latin America, Asia, Europe, the Middle East, and Africa. Citigroup stock touched an all-time high in the $59 region in late 2000. These days, you can buy a share for less than $5.
The easy answer on why Citigroup has fallen is to blame the global financial meltdown, but it would be a gross oversimplification to blame its misfortunes on the economic crisis (which, of course, it helped create). Early this year, Citigroup announced it would split its money-losing assets from its banking divisions. Citigroup was suffering $90 billion in writedowns and losses from mortgage-related securities, among other investments, and the split-up followed a substantial bailout by the U.S. government last November. On February 27, Citigroup announced that the U.S. would take a 36% stake in the company.
Citigroup held heavy exposure to collateralized debt obligations and subprime mortgages, which came back to bite the company as the national housing bubble burst. Like many other investment banks, Citigroup seems never to have anticipated such a downturn, and was left holding a number of defaulted loans.
Is Citi on the brink? Yes and no. It is the quintessential "too big to fail" financial firm. But fail is most likely what it would have done by now if not for the billions of dollars in government support it's received.
Beyond the risk that befalls all investment banks, Citigroup's problems could be reduced to any number of mistakes: misplaced trust, greed, a loss of skilled bankers, a poor understanding of the banking business, bad risk management. Yet unlike other investment banks (Bear Stearns, Lehman Brothers), the company's reorganization suggests that it may indeed have been too big to fail. At least not this year.
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Reader Comments (Page 1 of 1)
6-01-2009 @ 7:12PM
Leon said...
Citi can die as far as I'm concerned. 1 late payment and an interest rate of 58%!!!! Let's charge them 58% for the money us taxpayers loaned them!
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6-03-2009 @ 2:04PM
al said...
C is still on the repirator, and the oxygen level is turned WAY UP !!!!!!
When the hell are you or anyone going to tell the truth about all of C's special purpose vehicles that are mainly comprised of dried dog poops. They are carrying close to ONE TRILLION DOLLARS of this crap both on AND OFF THE BOOKS.
All of the FASB changes are simply masking the underlying problem.... write offs and write downs waiting to happen.
Put all of this against a backdrop of C selling some of its best revenue producing businesses, and you have a shrinking revenue stream going forward with enormous risk hidden in the closet.
Doesn't sound like a business plan/strategy that market leaders persue. Unfortuneately, C is the GM of financial services and will probably follow in their footsteps once the goverment crutch is removed. Save the poor taxpayer more good money going down the drain an pull the plug now.
Sell the pieces that can be sold, liquidate the rest, and let the free market process sort the rest out !!!!!!
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6-03-2009 @ 5:45PM
joey said...
I don't have once of pity for these financial corporations . Change is good let a few financial titans fall .Maybe some of the these high profile mangement including the CEO go to prison . I will not do business with Cit Corp ever again .
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6-09-2009 @ 3:15PM
Gale said...
city was one of the first to lone people big money on there homes when the value was up .Sometimes 150% of the value.... Knowing that if any thing happens the lower and middle class would not be able to make those crazy loan payments on unscure incomes... there fore who loses not city they got the gov. giveing them billions, and there forecloseing up and down the street every day... and takeing our money from both ends to pay there million dollar salires... damn. I should have been a banker not a plumber...
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