Essay About City Bank Of New York And Travelers Group

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Scale and Scope at Citigroup
Revised: August 28, 2002
Citigroup Chairman and CEO Sanford “Sandy” Weill reflected on a long, successful
career in which he built one of the built one of the largest and most profitable financial
service companies in the world. His strategy had always been growth through
acquisition, consistently increasing his firms size, product scope, and geographic range.
But now he wondered: Should he continue to expand, or should he follow the lead of
many of his competitors and focus on Citigroups most successful businesses?
Citigroup and Its Precursors
Citigroup, with its coveted single-letter ticker symbol C, is the result of the 1998 merger
of Citicorp and the Travelers Group. The merger broke new ground in combining
commercial banking, investment banking, and insurance under one roof for the first time
in the US since federal legislation forced their separation in the 1930s.
Citicorp was incorporated as the City Bank of New York in 1812, became National City
Bank of New York in 1865, and was renamed Citicorp in 1974. At the dawn of the
twentieth century, the bank followed its corporate customers abroad, opening branches in
Europe (London in 1902, Genoa in 1916, Petrograd in 1917!), South America (Buenos
Aires in 1914, Rio de Janeiro and Montevideo in 1915), and Asia (Shanghai and
Singapore in 1902). The result was the most extensive international branch network of
any American bank at the time. The banks president wrote to the chairman at the close
of 1915: “We are really becoming a world bank in a very broad sense, and I am perfectly
confident that the way is open to us to become the most powerful, the most serviceable,
the most far-reaching financial institution that there has ever been” (Cleveland and
Huertas, Citibank 1812-1970, p 88).
This vision was fleshed out during the 1920s, when the bank built what historians
Cleveland and Huertas termed a “financial department store” (Citibank 1812-1970, chs 7
and 8). It offered retail bank branches, corporate underwriting and lending, retail
brokerage services, international banking, and trust administration. The plan unraveled,
however, in the 1934, when new financial regulations in the US forced the liquidation of
the banks underwriting and securities distribution affiliate, the City Company.
Travelers Group was the holding company for Weills financial services conglomerate at
the time of the Citigroup merger. Weill had built retail brokerage firm Shearson Loeb
Rhoades before selling it to American Express in 1981. After leaving American Express,
he facilitated Control Datas 1986 spinoff of its Commercial Credit consumer finance
subsidiary. With Weill in charge, Commercial Credit purchased Primerica in 1988,
Firms and Markets
Mini-Case
Citigroup Page 2
taking the latters name. Among Primericas assets were a mutual fund company, an
insurance company, and Smith Barney, a mid-sized brokerage firm with a strong brand
name. (The brand was based in part on a striking series of television commercials
starring John Housman: “We make money the old-fashioned way. We earn it.”) In
1993, Weill repurchased his Shearson brokerage unit from American Express, creating in
Shearson Smith Barney a retail brokerage business comparable in size to market leader
Merrill Lynch. In 1993, he purchased Travelers Corp, a Hartford-based insurance
company. Travelers had struggled during the 1980s, but like Smith Barney had a strong
brand (the red umbrella). In 1995, Travelers Group (as the firm was now called)
purchased property and casualty insurance businesses from Aetna, which planned to
focus on healthcare. The 1997 purchase of Salomon Brothers gave the group a
substantial presence in investment banking and greater international reach. In 1997,
Travelers invested $1.6b in a joint venture with Nikko Securities, Japans third-largest
brokerage firm, giving it access to major Japanese corporate clients.
The Merger
The motivation for the Citigroup merger was one-stop shopping: The combined entities
of Citigroup would offer a wide range of products and services to the same retail and
corporate customers. From a customers perspective, there was potential for greater
convenience, since more products would be available from a single source. From the
firms perspective, there were potential cost advantages, since the cost of maintaining
customer relationships could be spread over more products. Both Weill and Citicorp
CEO John Reed stressed these potential gains, citing “convenience” and “cross-selling”
in public statements. Some observers predicted that the advantages would increase in the
future,