1. Analyze the budgeting process at citibank and how the budget is used for performance evaluation of...
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1. Analyze the budgeting process at citibank and how the budget is used for performance evaluation of managers.
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Citibank Indonesia In November 1983, Mehli Mistri, Citibank's country manager for Indonesia, was faced with a difficult situation. He had just received a memorandum from his immediate superior, David Gibson, the division head for Southeast Asia, informing him that during their just- completed review of the operating budgets, Citibank managers at corporate had raised the SE-Asia division's 1984 after-tax profit goal by $4 million. Mr. Gibson, in turn, had decided that Indonesia's share of this increased goal should be between s500,000 and S1,000,000. Mr. Mistri was concemed because he knew that the budget he had submitted was already very aggressive; it included some growth in revenues and only a slight drop in profits, even though the short-term outlook for the Indonesian economy, which was highly dependent on oil revenues, was pessimistic. Mr. Mistri knew that to have any realistic expectation of producing profits for 1984 higher than those already included in the budget, he would probably have to take one or more actions that he had wanted to avoid. One possibility was to eliminate (or reduce) Citibank's participation in loans to prime government or private enterprises, as these loans provided much lower returns than was eamed on the rest of the portfolio. However, Citibank was failing to participate in these loans could have significant costs in terms of relations with the government and prime customers in Indonesia and elsewhere. The other possibility was to increase the total amount of money lent in Indonesia, with all of the increase going to commercial enterprises. But with the deteriorating conditions in the Indonesian economy, Mr. Mistri knew that it was probably not a good time for Citibank to increase its exposure. Also, the govemment did not want significant increases in such offshore loans to the private sector at this time because of their adverse impact on the country's balance of payments and services account. So, Mr. Mistri was contemplating what he should do at an upcoming meeting with Mr. Gibson. Should he agree to take one or both of the actions described earlier in order to increase 1984 profits? Should he accept the profit increase and hope that the economy turmed around and'or that he was able to develop some new, hitherto unidentified sources of income? Or should he resist including any of the division's required profit increase in his budger? CITIBANK Citibank, the principal operating subsidiary of Citicorp, was one of the leading financial institutions in the world. The bank was founded in 1812 as a small commercial bank in New York City, and over the years it had grown to a large, global financial services intermediary. In 1983, the bank had revenues of almost $5.9 billion and employed over 63,000 people in almost 2,600 locations in 95 countries. Citibank's activities were organized into three principal business units: institutional banking, individual banking, and the capital markets group. The Institutional Banking units provided commercial loans and other financial services, such as electronic banking, asset- based financing, and foreign exchange, to corporations and governmental agencies around the world. The Individual Banking units, which operated in the US and 18 other countries, provided transactional, savings, and lending services to consumers. The capital markets group served as an intermediary in flows of funds from providers to users. With a staffof 3,500, this group was one of the largest investment banks in the world. (Exhibit I shows the relative size of these activities, and Exhibit 2 shows a summary corporate organization chart.) MEHLI MISTRI Mehli Mistri, Citibank's country corporate officer for Indonesia, joined Citibank as a management trainee in the Bombay office in 1960, just after finishing a BA degree in Citibank Indonesia In November 1983, Mehli Mistri, Citibank's country manager for Indonesia, was faced with a difficult situation. He had just received a memorandum from his immediate superior, David Gibson, the division head for Southeast Asia, informing him that during their just- completed review of the operating budgets, Citibank managers at corporate had raised the SE-Asia division's 1984 after-tax profit goal by $4 million. Mr. Gibson, in turn, had decided that Indonesia's share of this increased goal should be between s500,000 and S1,000,000. Mr. Mistri was concemed because he knew that the budget he had submitted was already very aggressive; it included some growth in revenues and only a slight drop in profits, even though the short-term outlook for the Indonesian economy, which was highly dependent on oil revenues, was pessimistic. Mr. Mistri knew that to have any realistic expectation of producing profits for 1984 higher than those already included in the budget, he would probably have to take one or more actions that he had wanted to avoid. One possibility was to eliminate (or reduce) Citibank's participation in loans to prime government or private enterprises, as these loans provided much lower returns than was eamed on the rest of the portfolio. However, Citibank was failing to participate in these loans could have significant costs in terms of relations with the government and prime customers in Indonesia and elsewhere. The other possibility was to increase the total amount of money lent in Indonesia, with all of the increase going to commercial enterprises. But with the deteriorating conditions in the Indonesian economy, Mr. Mistri knew that it was probably not a good time for Citibank to increase its exposure. Also, the govemment did not want significant increases in such offshore loans to the private sector at this time because of their adverse impact on the country's balance of payments and services account. So, Mr. Mistri was contemplating what he should do at an upcoming meeting with Mr. Gibson. Should he agree to take one or both of the actions described earlier in order to increase 1984 profits? Should he accept the profit increase and hope that the economy turmed around and'or that he was able to develop some new, hitherto unidentified sources of income? Or should he resist including any of the division's required profit increase in his budger? CITIBANK Citibank, the principal operating subsidiary of Citicorp, was one of the leading financial institutions in the world. The bank was founded in 1812 as a small commercial bank in New York City, and over the years it had grown to a large, global financial services intermediary. In 1983, the bank had revenues of almost $5.9 billion and employed over 63,000 people in almost 2,600 locations in 95 countries. Citibank's activities were organized into three principal business units: institutional banking, individual banking, and the capital markets group. The Institutional Banking units provided commercial loans and other financial services, such as electronic banking, asset- based financing, and foreign exchange, to corporations and governmental agencies around the world. The Individual Banking units, which operated in the US and 18 other countries, provided transactional, savings, and lending services to consumers. The capital markets group served as an intermediary in flows of funds from providers to users. With a staffof 3,500, this group was one of the largest investment banks in the world. (Exhibit I shows the relative size of these activities, and Exhibit 2 shows a summary corporate organization chart.) MEHLI MISTRI Mehli Mistri, Citibank's country corporate officer for Indonesia, joined Citibank as a management trainee in the Bombay office in 1960, just after finishing a BA degree in
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Ans1 Citibank applies two management processes to control its international branches sovereign risk limits review and operating budget review Its budgeting process is a bottomup Although it starts fro... View the full answer
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