• The merger between Citi and Travelers was one of the worst big bank mergers in history. The stock is down over 80 per cent since the merger. Citi has problems with money laundering in different departments, which the senior management didn't know about. In the case of Banamex, you have to ask yourself if they were paying good enough attention, if their systems were focused on the right thing. Citi accidentally transferred $900mn to a group of creditors instead of $9mn, and this started the latest chapter of Citi's struggles. Ninety-nine per cent of people don't pay attention to this, but Citigroup is fighting with hedge funds over $500mn that they accidentally transferred. Regulators, investors are asking the question, how can this happen? The Revlon issue at Citi was due to human error, but really reflected underlying deeper problems with antiquated technology. In 2022, almost two years after the Revlon case, Citi causes a flash crash, a sudden drop in a number of European stocks, because of a fat finger trading Error. The problem at Citigroup is simply the complexity, and it stretches back to the mergers that they pursued. Citibank did its famous merger in 1998, and it really became a symbol of the changing American regulatory landscape and the changing ambitions of American banks. The 90s really was a time of growth on Wall Street and just in the economy more broadly. Citigroup started in 1812 as First National Citi Bank in New York, and in 1993 it became the biggest bank holding company in the world. It was a giant bank that did corporate and retail banking, as well as investment banking and wealth management John Reed was the CEO of Citi and was different from Sandy Weill, who had built up broker dealers. The merger they're proposing is illegal, but someone had a different vision and decided to do it anyway. The merger between Citi and Travelers was cheered on by investors, but the Clinton administration wanted to relax the regulations, and Congress was going along with it. So they passed the new rules, and the deal was announced. Citibank became the first big American juggernaut to combine investment banking and retail banking, and went on a spending spree, planting flags in many countries, including Japan. When Citi merged with Travelers, they took partial ownership of entities, whereas previously they would acquire 100 per cent. I think that probably contributed to some of the issues that have happened down the road, because Sandy Weill, the ultimate operator who won out in the merger and got rid of his rival, John Reed, couldn't make it work. Travelers, a combine of Citigroup and Travelers, decided relatively quickly that they were not getting good profits off Travelers, so they split that part off. This was a fail, and then they layered mergers on top of mergers and never integrated them. When the subprime mortgage crisis erupted, Citibank's senior management had no idea that it was a potential risk. Charles Prince made a famous quote about financial markets and transactions just before the crisis, and it still resonates today. The financial crisis hit Wall Street hard in 2007 and 2008. Citigroup was one of the firms that was hit the hardest, and the boss of the world's biggest bank fell on his sword after revealing another £5bn of bad loans in America's housing market. Citi was going to have a harder time than JPMorgan because it had pieces in many different countries, but it is fighting against the tide and has to reinvent itself. Jane Fraser, who takes over for Vikram Pandit, is also from the Wall Street side of the business, and Michael Corbat, who takes over from him, is also of this kind of Wall Street merger risk taking. Jane Fraser has tried to simplify, clean up, and rationalise Citi, and has struggled to make that work. There is a cynical view expressed on Wall Street that women are given top jobs by troubled companies. Jane Fraser's appointment raises that question. Jane Fraser is a management consultant and has been at Citigroup for many years. Her challenge is to help the company grow, take market share, and improve its valuation. Jane Fraser is an unflashy, unflamboyant person who doesn't often grab headlines. She is in tune with the mood and zeitgeist in banking today, which is that investors want their banking leaders to be essentially understated, if not almost shy, and focused on sober, unglamorous parts of finance. Sandy Weill's vision of Citigroup failing because it tried to be all things to all people was wrong, but it certainly failed at Citigroup. Citigroup has to figure out how it fits into the new world of humble banking.

Questions:
1. Why has Citibank's growth strategy been challenged?

2. What would your plan of action be, going forward, if you were the CEO of Citibank?

3. Would you give a buy, a sell or a hold recommendation for Citigroup ( C ) stock and why?