Citi Group's Turbulent History and Regulatory Issues

Citi Group has faced numerous regulatory issues over the years, including a $7 billion settlement with the US Department of Justice in 2014 for its role in the mortgage crisis.

The bank's history of regulatory issues dates back to the 1990s, when it was fined $200 million for its involvement in the Mexican peso crisis.

Citi Group has also been involved in several high-profile scandals, including a $2.7 billion settlement with the US government in 2011 for its role in the LIBOR scandal.

The bank's regulatory issues have led to significant changes in its leadership, including the departure of CEO Vikram Pandit in 2012.

Citigroup was formed on October 8, 1998, following the merger of Citicorp and Travelers to create the world's largest financial services organization.

The merger between Citicorp and Travelers was announced on April 6, 1998, and was finalized in 1998-2001. This deal allowed the two companies to access each other's customer base for marketing financial products.

Travelers Group acquired all Citicorp shares in the transaction, and existing shareholders of each company owned about half of the new firm. The new company, Citigroup, Inc., maintained Citicorp's "Citi" brand in its name but adopted Travelers' distinctive "red umbrella" as the new corporate logo.

The merger of Travelers and Citicorp in 1998 was a significant event in the history of Citigroup. On April 6, 1998, Citicorp and Travelers announced a merger that would enable them to access each other's customer base for marketing financial products.

Travelers Group acquired all Citicorp shares in the transaction, with existing shareholders of each company owning about half of the new firm. The new company, Citigroup, Inc., maintained Citicorp's "Citi" brand in its name but adopted Travelers' distinctive "red umbrella" as the new corporate logo.

John S. Reed and Sandy Weill, the chairmen of both parent companies, were announced as co-chairmen and co-CEOs of the new company. However, their vastly different management styles presented questions about the wisdom of this setup.

The merger was facilitated by the passage of the Gramm-Leach-Bliley Act in November 1999, which opened the door to financial services conglomerates offering a mix of commercial banking, investment banking, insurance underwriting, and brokerage.

Joe J. Plumeri worked on the post-merger integration of the two companies and was appointed CEO of Citibank North America. He oversaw the network of 450 branches and boosted the unit's earnings from $108 million to $415 million in one year, an increase of nearly 300%.

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In 2009, the first iPhone was released, revolutionizing the way people interacted with their mobile devices.

This was a pivotal moment in the history of smartphones, marking a significant shift away from traditional mobile phones.

The iPhone's multi-touch interface and mobile app store were game-changers, offering users a more intuitive and personalized experience.

Users could now access a wide range of apps, from social media and games to productivity tools and entertainment.

The iPhone's impact on the tech industry was immense, paving the way for future innovations in mobile technology.

The release of the iPhone in 2009 was a major milestone in the history of smartphones, setting a new standard for design, functionality, and user experience.

Citigroup has faced numerous challenges and controversies over the years. In 1998, the General Accounting Office issued a report critical of Citibank's handling of funds received from Raul Salinas de Gortari, brother of Carlos Salinas, the former president of Mexico.

Citigroup was accused of facilitating the transfer of millions of dollars through complex financial transactions that hid the funds' paper trail. A Citibank official called this a violation of the bank's "know your customer" policy.

The bank's handling of Enron's finances also raised red flags. On October 22, 2001, Citigroup was sued for violating federal securities laws by misrepresenting its Enron-related exposure in its 2001 Annual Report.

Here's a summary of some of the notable fines and penalties paid by Citigroup:

The 2007 Subprime Mortgage Crisis was a perfect storm of economic instability. It was triggered by the widespread issuance of subprime mortgages to borrowers who couldn't afford them.

These mortgages had low introductory interest rates that would reset to much higher rates after a few years, making monthly payments unaffordable for many homeowners. This led to a surge in defaults and foreclosures.

The crisis was further exacerbated by the securitization of these mortgages, which allowed banks to package and sell them as investments to other financial institutions. This created a web of complex financial instruments that were difficult to value.

Investment banks and other financial institutions had invested heavily in these mortgage-backed securities, which turned out to be worthless when the housing market collapsed. This led to a massive loss of wealth and a credit crisis that froze lending across the economy.

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The Plutonomy Report is a 2005 study that highlighted the stark contrast between the top 1% and the bottom 60% of Anglo-American households. It was prepared by Citi global strategists for their investor clients.

This report documented the imbalance of wealth in the United States, United Kingdom, and Canada. Six drivers and other economic measurements, such as income and savings rates, were studied.

The wealthy were found to be the primary drivers of an ongoing technological revolution and were also the ones benefiting from capitalist-friendly governments and tax regimes. The middle class was not the focus of this study.

The report revealed that the wealthy were both powering and consuming the economic systems in these countries. This imbalance has significant implications for economic policy and social welfare.

Citigroup agreed to pay nearly $18 million in refunds and fines to settle accusations of theft from customer accounts in 2008.

This scandal involved an improper computerized "sweep" feature that moved positive balances from card accounts into the bank's general fund without telling cardholders.

The practice, which occurred from 1992 to 2003, affected roughly 53,000 customers nationwide who received $14 million in restitution.

California Attorney General Jerry Brown described the practice as "knowingly stealing from its customers, mostly poor people and the recently deceased."

Futures market manipulation is a serious issue that can have far-reaching consequences.

In 2017, bank regulators fined Citigroup $25 million for the actions of five traders who manipulated U.S. Treasury futures over 2,500 times between July 2011 and December 2012.

Citigroup was criticized for failing to adequately supervise its traders and for not having systems in place to detect spoofing.

Spoofing involves entering fake orders designed to fool others into thinking prices are poised to rise or fall.

In 1998, the General Accounting Office issued a report critical of Citibank's handling of funds received from Raul Salinas de Gortari, brother of Carlos Salinas, the former president of Mexico.

The report, titled "Raul Salinas, Citibank and Alleged Money Laundering", indicated that Citibank facilitated the transfer of millions of dollars through complex financial transactions that hid the funds' paper trail.

A Citibank official called the lack of inquiry into Salinas' fortune a violation of the bank's "know your customer" policy, which is a standard practice in the financial industry.

Citibank took on Salinas as a client without making a thorough inquiry as to how he made his fortune, which is a serious omission in the world of finance.

Citigroup's risk management failures have been a major concern for regulators and investors alike. In 2020, the bank agreed to pay $400 million to federal regulators over long-standing concerns regarding its failure to establish effective risk management.

The bank's lax controls and oversight policies have allowed money launderers to continually find ways to take advantage of Citibank's systems. Agents from the United States Drug Enforcement Administration cited recent investigations into the Sinaloa Cartel as evidence of this issue.

Citigroup's failure to control the flow of dark money through its accounts has also been a major issue. In 2017, prosecutors claimed drug smugglers were using Citigroup's Banamex USA unit to sneak dirty money into the United States from Mexico.

Here are some notable examples of Citigroup's risk management failures:

In 2001, Citigroup was sued for violating federal securities laws by misrepresenting its Enron-related exposure. The bank paid $145 million in fines and penalties to settle the claims.

The bank's failure to disclose the true extent of its legal liability arising out of its 'structured finance' deals with Enron has also been a major issue. In 2005, Citigroup paid $2.65 billion pre-tax to settle a lawsuit concerning its role in selling stocks and bonds for WorldCom.

In 2010, Citigroup achieved its first profitable year since 2007, reporting a net profit of $10.6 billion.

This was a significant turnaround from the previous year, when the company had reported a $1.6 billion loss.

The government's remaining stock holding in Citigroup was sold late in 2010, yielding an overall net profit to taxpayers of $12 billion.

This profit was made possible by a special IRS tax exception that allowed the US Treasury to sell its shares at a profit, while still owning Citigroup shares.

The Treasury sold its shares for a net profit of $12 billion, which was a welcome outcome for taxpayers.

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In 2014, Citigroup made a significant decision to exit consumer banking in 11 markets, including Costa Rica, El Salvador, Guatemala, Nicaragua, Panama, Peru, Japan, Guam, the Czech Republic, Egypt, South Korea, and Hungary.

This move marked a significant shift in the company's strategy, affecting a substantial number of customers across these markets.

Citigroup's exit from consumer banking in these markets was a major downsizing effort, highlighting the company's efforts to restructure and adapt to changing market conditions.

The company's decision to exit consumer banking in these markets was a significant one, with far-reaching implications for customers and the company's overall operations.

In the years following this downsizing, Citigroup faced several challenges, including a high-profile mistake in 2020 when they mistakenly wired $900 million to the creditors of one of their clients, Revlon.

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Citi's consumer banking unit underwent significant downsizing between 2021 and 2024.

In February 2021, Jane Fraser became the first female CEO of a Big Four bank, marking a milestone in the company's history.

Citi announced its plan to exit consumer banking operations in 13 markets, including Australia, Bahrain, China, India, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand, and Vietnam.

This decision was made in April 2021, with the company citing a need to focus on its core businesses.

In January 2022, it was announced that UOB would purchase Citi's consumer banking business in Indonesia, Malaysia, Thailand, and Vietnam for approximately $4.9 billion.

DBS Bank acquired Citi's consumer banking business in Taiwan, Citi Consumer Taiwan, for a total consideration of $706 million in August 2023.

Citi will continue to operate its consumer banking businesses in the US, Canada, Europe, Hong Kong, Singapore, London, and the UAE.

The company also announced its plan to exit consumer banking in Mexico, as well as small-business and middle-market banking operations, in January 2022.

In March 2022, Citi disclosed an exposure of over $10 billion in Russian assets, which may be materially affected by Russia's expulsion from the SWIFT banking system.

By September 2022, Citi was planning to shutter its retail bank business in the United Kingdom.

In January 2024, Citi announced that it would be cutting 20,000 jobs from the company.

The company's focus has shifted to its Securities Services business, the most profitable of its five business units, as highlighted in June 2024 at its biennial Investor Day.

In October 2024, it was reported that the company would move significant portions of its financial infrastructure to Google Cloud.

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