Citigroup

Case Study:

Citigroup, Inc.

Submitted to: Prof. Rahul Gupta Chowdhry Submitted By: Group 8: Arpita Bahadur Gaurav Kumar Manish Gupta Pavan Kumar Ranjini K Ballal Vani Vyas

Citigroup, Inc. Overview: Citigroup Inc., doing business as Citi, is a major American financial services company based in New York City, NY. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group on April 7, 1998. Citigroup Inc. has the world's largest financial services network, spanning 107 countries with approximately 12,000 offices worldwide. The company employs approximately 358,000 staff around the world, and holds over 200 million customer accounts in more than 100 countries. It is the world's largest bank by revenues as of 2008. It is a primary dealer in US Treasury securities and its stock has been a component of the Dow Jones Industrial Average since March 17, 1997. Citigroup, which had huge losses during the global financial crisis of 2008, was rescued in November 2008 in a massive bailout by the U.S. government.

Merger and Tie-up: On April 6, 1998, the merger between Citicorp and Travelers Group was announced to the world, creating a $140 billion firm with assets of almost $700 billion. The deal would enable Travelers to market mutual funds and insurance to Citicorp's retail customers while giving the banking divisions access to an expanded client base of investors and insurance buyers. Although presented as a merger, the deal was actually more like a stock swap, with Travelers Group purchasing the entirety of Citicorp shares for $70 billion, and issuing 2.5 new Citigroup shares for each Citicorp share. Through this mechanism, existing shareholders of each company owned about half of the new firm. While the new company maintained Citicorp's "Citi" brand in its name, it adopted Travelers' distinctive "red umbrella" as the new corporate logo, which was used until 2007. The chairmen of both parent companies, John Reed and Sandy Weill respectively, were announced as co-chairmen and co-CEOs of the new

company, Citigroup, Inc., although the vast difference in management styles between the two immediately presented question marks over the wisdom of such a setup. The remaining provisions of the Glass-Steagall Act - enacted following the Great Depression - forbade banks to merge with insurance underwriters, and meant Citigroup had between two and five years to divest any prohibited assets. However, Weill stated at the time of the merger that they believed "that over that time the legislation will change...we have had enough discussions to believe this will not be a problem". Indeed, the passing of the Gramm-Leach-Bliley Act in November 1999 vindicated Reed and Weill's views, opening the door to financial services conglomerates offering a mix of commercial banking, investment banking, insurance underwriting and brokerage.

Cross-Marketing: Cross Marketing is a partnership of at least two companies on the value chain level of marketing with the objective to tap the full potential of a market by bundling specific competences or resources. Companies recognize partnerships as an effective means for untapping growth potentials they cannot realize on their own. The general objective of cross-marketing strategy was to sell products and services of one of citigroups business to customers of another (i.e. to sell insurance policy to banking customers and vice-versa). Citigroup had undertaken cross-marketing initiative at various levels. Citigroup had utilized citicorp’s international distribution system and customer base to cross market products and services. Citigroup had also used traveler's existing sales force and customer database to cross market Citicorp’s products and services and utilized traveler’s demonstrated cross-marketing expertise to increase Citicorp's market penetration with existing Citicorp’s customers.

Formation of Cross-Marketing Group: Citigroup formed the cross marketing group to facilitate its strategies. The CMG met regularly to review results, identify issues, and promote successful business transfers and jumpstart key cross-marketing initiatives.

CMG defined and distinguished cross-marketing revenue from core-product sales in order to accurate measure the success of initiative. For this CMG had divided the groups’ business into 2 primary categories: •

Consumer eccentric initiatives

•

Corporate eccentric initiatives

Approximately $350 million of the efficiency improvements will be achieved in the Corporate business, both to realize synergies and operating efficiencies and to reflect market turmoil in certain regions and businesses. These savings will come from all areas of the Corporate business, including emerging markets, global relationship banking and investment banking, as the company rationalizes its presence in countries with multiple operations, consolidates Citibank and Salomon Smith Barney locations, integrates trading platforms and exits non-strategic businesses. Cross-marketing between Citibank corporate bankers and Salomon Smith Barney investment bankers has already yielded more than 100 opportunities which would not have been open to either operation on its own, from issuance and custody of yen-denominated debt instruments for an executive incentive program, to co-managing one of the year's largest IPOs, and to advising on and providing short-term financing for a Latin American privatization.

Creating value for consumers: CMG defined cross-marketing for consumer awareness as “the sale of incremental products outside the core product portfolio”. For example transits and loans were core products for Citi Banking North America (CBNA – subsidiary of Citicorp), and when sold by CBNA did not constituted cross marketing. However sale of insurance products on mutual funds by CBNA was considered to be cross-marketing. In total Salomon Smith Barney generated nearly $3.4 billion I ncross marketing as defined by CMG.

Creating value for corporates: The CMG defined cross marketing for corporate business as “the sale of products and services different than a core product for that corporate customer”. The Global Relationship Bank, which focused on servicing large multinational companies and their subsidiaries, proved the most effective Citigroup cross-marketer in 2000 facilitating the increased sale of investment banking services and institutional investment management to its corporate customers. The Global Relationship Bank created nearly $2.8 billion in additional revenue for Citigroup in 2000.

Global Universal Bank Model: Citigroup has over 200 million customers in more than 100 countries and provided customers, corporations, government and institutions with a range of financial products and services providing consumer banking and credit, corporate investment banking, insurance, securities brokerage and asset management. Citicorp was engaged primarily in banking business in locations around the world. At the time of merger, it was ranked as the largest banking institution in terms of consumer and corporate customers. Hence the process of value delivery by global bank model is: