Citi (1812- ), also known as Citigroup, Citicorp or Citibank, is the biggest bank on Wall Street. Unlike Lehman Brothers, it is considered to be “too big to fail”: if it fell, too many other banks and companies would fall too. So on Monday November 24th 2008 the American government bought a $20 billion stake in the bank and stood behind hundreds of billions of dollars of possibly bad loans. This comes on top of a $25 billion stake the government had bought several weeks before.
All this money is coming from the $700 billion in taxes the government is using to save Wall Street.
The stock market, which fell below 8,000 last week, rose by almost 400 points on the news.
Citi has lost billions in the subprime mortgage crisis and the credit crunch that followed. It had made billions of dollars of home loans to people with bad credit histories.
Citi’s stock price, which stood above $50 before the crisis hit in August 2007, had fallen to $25 by February 2008 and $12 by October. In November it sank even further, to less than $4. Citi has been losing billions and laying off tens of thousands of workers.
Citi is huge. It has branches all over the world and has money in every field of banking. It lends money to foreign governments and to ordinary people. It aims to be a universal bank, a bank you can turn to no matter what you want.
If you have a credit card from Macy’s, Sears, Shell, Home Depot or Staples it is, in fact, behind the scenes, a card from Citi. Even some American Express cards come from Citi.
In the 1960s it gave the world the MasterCard. In the 1970s it was one of the the first banks to have ATMs, money machines. In the 1980s it was one of the big banks in New York. In 1998 it became not just big, but huge when it merged with the Travelers Group and changed its name from Citicorp to Citigroup. (It later parted ways with Travelers and changed its name to just Citi).
Citi is made up of not just the old City Bank of New York but also all the other banks and companies it has bought or merged with along the way: Bank Handlowy, Smith Barney (“We make money the old-fashioned way. We earn it.”), Salomon Brothers, Banamex, Primerica and others.
Its size is what has saved it – so far. Losses in one part of the company can be made up by gains in others. And when all else fails, the American government can pump in billions!
Yet its huge size makes it hard to manage and lead, makes it slow to change. And all the little pieces that have been bought up over the years do not work well together and that will not change overnight.
– Abagond, 2008.