What sets one bank apart from its competitors? As banks in the United States continue to merge and oligopolize, the real answer is “not much.” The four largest US banks are so dominant that the third largest by assets, Citigroup Inc. (C), has almost three times the assets of the fifth largest.
Citi, a leader in banking innovation, introduced the ATM in the United States back in the 1970s. Prior to that, the company created other industry-changing products and concepts such as certificates of deposit and compound interest in savings accounts. The bank also broke ground in more dubious ways. He was one of the first recipients Troubled Asset Rescue Program (TARP) which rewarded mismanaged banks with billions of dollars ($20 billion in Citi’s case) of taxpayer money after the 2008 mortgage crisis. In the year and a half before the Treasury Secretary graciously put a public tap into Citi’s pockets, the bank’s stock price had fallen from more than $500 to $35. The lowest the stock traded was in early March 2009, when it traded below $10 for four days. After a reverse split in 2011, Citi shares have remained in the double digits ever since. Market capitalization around $96 billion, as of September 2022. Is part ProShares UltraPro Short S&P500 ETF.
Citi reported revenue of $19.6 billion in Q2 2022, compared to $17.8 billion in the same period last year. Here’s how Citi makes money.
A tale of two Citis
Citi found itself on the wrong side of history during the subprime crisis a decade ago. The bank’s decision to double down on subprime mortgages on the eve of the financial crisis led to losses of $18.7 billion in 2008. To slow the bank’s losses, Citi split its operations into two separate subsidiaries: Citicorp and Citi Holdings.
“Citicorp is our flagship franchise and will be a source of long-term profitability and growth for Citi,” former CEO Vikram Pandit said six months later. “We will manage our business and assets at Citi Holdings to optimize their value over time.”
Citicorp, literally, controls Citi’s “core” operations and is divided into three divisions: global consumer banking, institutional client group, and corporate. The first of these divisions operates under the name “Citibank”. It handles the normal things you’d expect from a consumer bank, like holding depositors’ funds, lending money to small businesses, and offering low-level financial advice. Citibank is also home to Citi’s Card operations, we’ve learned time and time again, is where banks have some of the highest profit margins.
The Institutional Client Group is Citicorp’s second division. This is where Citi does its traditional investment banking, such as corporate and securities lending. When Sprint Corp. (WITH) merged with Japan’s SoftBank, Citi acted as lead financial advisor. Institutional client business fell 2% to $9.2 billion in the third quarter of 2018.
The last division of Citicorp is the corporate department, which is similar to corporate departments in other non-bank entities. It is an account for day-to-day operations, wages, bank equity and other items necessary for business. It is not an income, but it is vital. Corporate revenue also fell 5% to $494 million in 3Q18.
Citi Holdings, on the other hand, manages a small portfolio of assets worth $54 billion, equivalent to just 3% of Citigroup’s total balance sheet. At its peak, Citi Holdings managed more than $800 billion in assets, which would have made the subsidiary the nation’s fifth-largest bank — both now and when it was founded in 2009. However, in Q4 2016, Citigroup announced that it would no longer separate the company’s results from Citi Holdings when reporting earnings.
Citi has approximately 200 million customer accounts and operates in more than 160 countries, with operations divided into four geographic regions: North America, Latin America, Asia Pacific, and Europe/Middle East/Africa.
Looking primarily at consumer banking by region, North America is by far the most profitable for Citi. The continent accounted for more than $5.2 billion in revenue in the first quarter of 2020. A little less than half, $2.1 billion, comes from that Credit Cardsa permanent profit center for most banks.
Europe, the Middle East and Africa remain a small market for Citi. Citi barely registers in Western Europe. Its biggest markets in this part of the world are Poland, Russia and the United Arab Emirates; France, Germany and the UK are not factors. EMEA consumer banking revenue was just shy of $3.4 billion in Q1 2020.
In Latin America, average loan balances are even higher. Consumer banking generated $1.19 billion in revenue there this quarter. That leaves Asia, the region where Citi’s securities banking is largest compared to its corresponding consumer banking. Consumer banking revenue in the world’s largest and most populous continent totaled $1.7 billion in Q1 2020, driven by growth in deposits, loans and insurance.
Citi has everything from dominant shares in the banking market to lobbyist influence. When a corporation gets repeated federal assurances that it can’t go out of business, investors should take it as a green light and run with it.