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.
See more iconic American companies on the brink.
