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 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.

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