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Key Success Factors

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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 firm's 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 Citigroup's 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 bank's 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 bank's underwriting and securities distribution affiliate, the City Company.

Travelers Group was the holding company for Weill's 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 Data's 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 latter's name. Among Primerica's 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, Japan's 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 customer's perspective, there was potential for greater

convenience, since more products would be available from a single source. From the

firm's 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,

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