Sandy Strikes Again U.S. Banker (10/00) Vol. 110, No. 10 p.44; Milligan, Jack
Citigroup, led by Chairman and CEO Sandy Weill, expects
to earn a 27.3 percent return on equity this year, up from 22.9
percent in 1999, and it has $791 billion in assets. Citigroup
also just purchased Associates First Capital for $31 billion.
Associates does business mostly with the lower-middle economic
class, where interest rates and fees are higher than those
charged by banks. Associates will likely impact Citigroup
greatly, shifting the balance of the company's business more
toward consumers, making it less dependent on corporate and
investment banking. Last year, global corporate and investment
banking made up 51.4 percent of Citi's profits, compared with
43.5 percent for consumer, and 6 percent for wealth management.
This shift to consumer focus should make Citi's earnings less
volatile. Also, a key objective in the merger was to cross-sell
products to its 100 million existing customers and Associates' 26
million customers. The biggest component in Citi's consumer unit
is the credit card operation, which earned $604 million through
the first six months of 2000, followed by life insurance and
annuities at $389 million and retail banking at $275 million.
The merger will make Citi the largest originator of home equity
loans in the U.S. credit card market, with loans of $86.5
billion. The deal will also extend Citigroup's franchise, which
was limited to the United States and Mexico, to Japan and Europe.
The Internet may be used to accelerate Citi's cross-selling
efforts, and the company is currently restructuring its
electronic strategy for the consumer group. Some of Citigroup's
most important moves in this area include the launching of its
aggregation Web site MyCiti.com and its arrangement with America
Online (AOL) to provide money emailing capabilities to AOL's 26
million users in exchange for marketing rights. Also, as the
largest originator of credit cards, with 22 percent of all sales
activity in the country, Citigroup stands a good chance of
becoming one of the major players in the Internet payment system.