1.0 Introduction
Citi Group (Citi) has taken a bad hit during the financial crisis in 2008, which it continues to shoulder today, almost a decade later. The appointment of current CEO Michael Corbat in 2012 pushed the company back to the path of better reduction of non-profitability, which finally broke through in 2015 when Citi finally made positive profits beyond its 2015 breakeven target. The succeeding sections explored this journey of challenges and promises as clearly as possible.
2.0 Mission and Vision: Impact to Primary Stakeholders
Citi’s vision and mission focuses on the customer as a financial services receiver (Citi, 2016). Its vision centers on its status as ‘the global bank’, connecting millions of people and institutions, governments or corporations, across nations and cities in hundreds while establishing a reputation of an “indisputably strong and stable institution” (p. 2). Its mission had been constant at acting as trusted partners to its clients, responsibly providing financial services to drive their growth and economic advancement and protecting their savings even while purchasing things for the better quality of life, for optimizing daily operations, and for building sustainable public infrastructure.
Citi’s primary stakeholders are their customers, their employees, and their shareholders.
For its customers, Citi safeguard customer assets by providing alternative sources of cash flow without touching their savings for future use, driving business growth even at low working capital levels, and continuing public services despite its enormous needs for infrastructure spending on schools, housing, transportation, and related vital public projects (Citi, 2016).
For its employees, Citi treats them as the heart of its corporate work, recognizing their contribution through meritocratic mechanisms and believing that each employee can achieve their organizational goals in their current organizational roles (Citi, 2015).
For its shareholders, Citi safeguards their investments by generating strong earnings with a smaller workforce, strengthening its core businesses, reducing outstanding capitalization, and returning meaningful equity to them (Citi, 2016).
3.0 Competition Analysis Using the 5 Forces Method
3.1 Force No. 1, Threat from New Entrants: Global credit card network and scale under the disposal of multinational credit card issuers, new entries will have to struggle for years before they can become global players at par with Citi’s size (Citi, 2016). However, entries of nonbank players is predicted to change the lending landscape in the future in the payments industry, crossing borders (Niederkorn, et al., 2015). Threat Level: Moderate.
3.2 Force No. 2, Threat from Buyers’ Bargaining Power: In the credit card business, the buyers practically has no bargaining power with regards to the interest rates and other penalty fees. Threat Level: Low.
3.3 Force No. 3, Threat from Sellers’ Bargaining Power: Citi as seller has full bargaining power over the buyers, particularly in the credit card business. Other banking services (e.g. investment banking) may be subject to some negotiations. However, in general, Citi has full power over the rates. Threat Level: Low.
3.4 Force No. 4, Threat from Substitute Products: McKinsey (2015) expected that the entry of nonbank digital payments operations, which are usually technology corporations and start-ups, will transform the customer experience through online payments and broader landscape. Moreover, other sources of capital, such as equity capital, can be opted for instead of debt issuance. Threat Level: High.
3.5 Force No. 5, Threat from Rival Institutions: Citi is essentially eclipsed by its rival right due to the financial difficulties it is experiencing in the last few years after the financial crisis in 2008. The Business Wire report on fraud indicated the reduced stature of Citi among its peers in the lending business under the so-called ‘global general purpose brands’, which did not even mention Citi among the respectable players (Fulmer, 2015). Threat Level: High.
4.0 Environment Analysis Using the SWOT Method
4.1 Strengths: Citi has trimmed down its workforce by 28,000 in 2015, allowing them to generate strong earnings ($17 billion as its highest since 2006), strengthen its core businesses in a new and better mix, reduced its outstanding common shares (which increased shareholders’ value), and better operating efficiency as it reduced (by 30 percent) its branch network or 182 centers and exiting from markets with doubtful future prospects of dependable rate of return (Citi, 2016). Currently, it is concentrating in having physical present in highly profitable locations. Its Global Consumer Bank (GCB) has a customer base of more than 100 million in the fastest-growing cities in 24 nations globally with 3,000 branches. Citi continues to be the largest credit card issuer worldwide with more than 138 million in accounts.
4.2 Weaknesses: Despite achieving its first positive net income ($ 1 billion) in 2015, its financial situations is still in a difficult state, having to sell assets to help it stay afloat to improve liquidity and have to struggle getting at least a break-even in profitability. Its net revenue growth-loan growth policy remained negative net debt with its revenues growth set only at 3 percent while the debt growth higher at 5 percent (Citi, 2016). This problem cost Citi a place in Forbe’s top 50 most trustworthy financial companies in American (Dill, 2014). Fast Company also excluded Citi in its top 10 most innovative finance companies globally (Miller, 2014).
4.3 Opportunities: The growing clamor for governments and corporations to finance sustainable projects to mitigate climate change provides an opportunity for Citi to help finance such a large financial solution. Citi has started to tap this opportunity by offering $100 billion worth of long-term financial under its Sustainable Progress Initiative (Citi, 2016).
4.4 Threats
4.4.1 Citi’s higher 30+ days past due rate of delinquency on its amortizing home equity debt issues continued to threaten Citi’s interest losses during reset dates that falls during high interest rate periods (Citi, 2016). Moreover, the global economic growth levels continued to be uncertain and uneven.
4.4.2 Geopolitical tensions, which occurs in emerging markets in Russia and the Middle East, may result to incur sovereign defaults, whether partial or complete (Citi, 2016).
4.4.3 Fraud losses constituted another threat. In 2015, the total losses reached $16.31 billion when global card volume reached $28.84 trillion (Fulmer, 2015). Fraud grew 19 percent in 2015 while outpaced volume grew only 15 percent. Global general purpose brands (e.g. UnionPay, MasterCard, JCB, Discover/Diners, and American Express) suffered fraud losses reached $15.45 billion (up 18.5%) at a total volume of $23.78 trillion (up 14.8%). The United States accounted almost half (48.2%) of the gross card fraud losses.
4.4.4 Moreover, Citi’s stature among its global has been greatly reduced due to its bad performance during the financial crisis in 2008, which did not earn Citi even a mention in the Business Wire report, which did not even consider mentioning Citi (Fulmer, 2015).
5.0 Strategy based on SWOT Analysis Outcomes
5.1 Strategy No. 1, Increase Revenue Growth; Reduce Debt Growth: Citi’s negative net revenue-debt growth plan is counterproductive because debt will be growing faster than the revenue. Instead, it should reverse the targets to at least 5 percent revenue growth to a maximum of 3 percent debt growth instead.
5.2 Strategy No. 2, Increase Sustainability Financing Programs: Citi must increase its focus on financing corporate sustainability programs in order to increase revenue potentials instead on the individual consumer market, which may have high risks for default. Institutional lending with a cause can also create positive image for Citi before increasingly sustainability conscious clients and communities.
5.3 Strategy No. 3, Increase Image Rebuilding Efforts: Currently, Citi’s negative image is conditioned by its failure to survive without external support the 2008 financial crisis. It is important for its future competitiveness to start rebuilding its stability image through community programs that requires minimal expenditures with equivalent media mileage.
6.0 Strategies for Maximum Competitiveness and Profitability
6.1 Business-Level Strategies
6.1.1 Focus on core businesses: Citi strengthens its core businesses in a new and better mix (Citi, 2016). Since 2014, it has disposed more than 60 non-core businesses (Citi, 2015). This strategy should be continued and sustained. Although it has changed its business mix, there seems to be no significant change here. For instance, the business share of its global consumer banking (GCB) business reduced only by 3 percent from its 2014 level. Instead, Citi must significantly reduce its GCB business to up to 40 percent and increase its ICG Banking business or ICG Markets and Securities Services to 36 percent, which can be more meaningful profitably and less risky than GCB.
6.1.2 Focus in highly profitable markets: Citi is also concentrating its physical assets in highly profitable locations in fast-growing cities worldwide. Its Global Consumer Bank (GCB) has a customer base of more than 100 million in the fastest-growing cities in 24 nations globally with 3,000 branches. Citi, however, must not stop at reduced branch network size. Instead, it may continue to expand its network but, this time, in highly profitable locations unlike before.
6.2 Corporate-Level Strategies
6.2.1 Reduction and enhancement of Workforce: Citi has trimmed down its workforce by 28,000 in 2015, allowing them to generate strong earnings ($17 billion as its highest since 2006), which included savings from reduced salary expenditures (Citi, 2016). From its peak workforce of 375,000 employees during the crisis, it has trimmed itself down to 241,000 employees, down 134,000 employees (or 35.7 percent) (Citi, 2015). Since 2013, it is cutting down its direct staff by 10,000 annually. However, this strategy should not stop here. It should continue trimming its workforce based on performance standards while hiring additional employees with clear competencies to contribute meaningfully to its bottom line. Citi can profit more from each new employee who can earn it additional $1 billion a year than from keeping an employee that contributes only $100,000 a year.
6.2.2 Rationalized reduction of branches: Citi has cut down its branch network by 182 centers in 2015 (equivalent to 30 percent of its workforce), exiting from markets with doubtful future prospects for dependable returns (Citi, 2016), increasing its operational efficiency. This strategy should continue based on a productivity standard per branch. If a branch performs less than expectations, highly performing staff must be transferred to well-performing branches and close the low performing branch.
6.2.3 Concentration of shares’ value: Citi has reduced its outstanding common shares, effectively increase its shareholders’ value (Citi, 2016). This strategy is valuable only when the market is bullish, which profits the shareholders to buyback outstanding common shares. However, Citi must also establish a strategy of selling more common shares in bullish markets when each Citi is more expensive than its underlying value. If properly analyzed, the net mean difference in shareholder value per share will be close to zero when market prices are high even if selling more shares are done. All newly issued shares during bull markets may be bought back during bear markets for a profit, which adds effective value to its shareholders.
7.0 Communication Plan for Strategies (to inform stakeholders)
7.1 For its primary internal stakeholders (i.e. shareholders and employees), Citi can communicate its strategies through its annual reports, which are normally distributed to its shareholders and can be made available in a copy or two in its various branch networks worldwide for employees.
7.2 For its primary external stakeholder (i.e. customers), Citi can utilize ordinary means of communication with its existing clients. For instance, credit card holders may be informed either through its monthly online bills or through the email sending these bills (e.g. through a link in email, etc.) or both and simultaneously.
8.0 Corporate Governance Mechanisms
8.1 Separation of the Chief Decision Management Authority (i.e. CEO) from the Chief Decision Control Authority (i.e. Board Chairman): In the 16-member Citi Board of Directors, Michael E. O’Neill is the chairman, while current CEO Michael Corbat is an ordinary member (Citi, 2016). This separation effectively prevents the inherent conflict found when the decision control authority and the decision management authority belong to a single person, maintains the internal checks and controls among the top managers, and protects the Board’s inherent right to monitor the executions of management decisions by the CEO (Agyei & Owusu, 2014).
8.2 Stock Ownership Commitment (SOC) Policy: Citi has an outstanding corporate governance guideline requiring certain senior executives of the company, including the CEO, to maintain a minimum ownership level with Citi. It follows a senior managerial ownership principle, which assumes that senior managers who are equity owners of their companies will have the necessary motivations to make decisions that are of positive impact to the company (Agyei & Owusu, 2014).
9.0 Leadership Effectiveness Evaluation
9.1. Evaluation: Since CEO Cobat took over the leadership of Citi in 2012, CEO Cobat managed to gradually reduce Citi’s long-term debt to $201 billion in 2015 from $239 billion in 2012, down 15.9 percent in three years. And for three years of losses, he managed to turn around Citi Holdings into its highest profit since 2006. Except for the higher debt growth strategy used (compared to low revenue growth objective), which may have been thoroughly reviewed and approved by the Board of Directors, Cobat has performed very well over all.
9.2 Recommendation: There are areas that CEO Cobat may failed to notice in guiding Citi into further financial performance that it has accomplished in 2015. He should communicate more in these areas: (1) Hiring of new employees with exceptional talents to deliver at par more than those already in the roll; (2) Aggressive building on its institutional consumers as its strategic foundation for sustainable profitability in the future; and (3) Emphasis of greater revenue growth targets and reduction of debt growth tolerance.
10.0 Responsible Corporate Citizenship Efforts
10.1 Citizenship Initiatives: Citi established the $100 Billion Environmental Finance Goal to provide financing to activities that help reduce the impacts of climate change as well as create environmental initiatives that benefit communities (Citi, 2016). In 2015, it provided such support to the affiliates of Alterra Power Corp. (APC) and the Starwood Energy Group (SEG).
Moreover, under the Cities for Citizenship program, at least 6,000 eligible immigrants for citizenships received financial (and legal) assistance in 20 American cities (Citi, 2016).
10.2 Impact to Bottom Line: Citi’s citizenship initiatives had direct positive impact to its bottom line, assuming that loaned monies under these programs would be paid back in full with at least an interest income in it. In its $100 Billion Environmental Finance Goal, the total grant amount of $100 billion, if availed fully by grantees, will add interest income to its bottom line. At an assumption of 10 percent of annual interest income, this grant amount will earn Citi an annual profit from interest income of $10 billion. The same impact follows in its Cities for Citizen Program. Although no specific information is available on the average grants given to each eligible immigrants, an assumed average grant of $10,000 for each of the 6,000 grantees will enable Citi to create a business value of $60 million. An interest income of 10 percent from that amount will be $6 million in profit for the bottom line.
11.0 Conclusion
Despite CEO Corbat’s commendable performance in turning around Citi within three years, a sustained attack against leverage and irrationalized expenditures must continue. However, there is clear evidence that Corbat can do his job better and better each year.
12.0 References
Agyei, A. & Owusu, A.P. (2014, January). The effect of ownership structure and corporate
governance on capital structure of Ghanaian listed manufacturing companies. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 109-118.
Citi. (2016). Citi annual report 2015. Getzville, NY: Citigroup.
Citi. (2015). Citigroup annual report 2014. Getzville, NY: Citigroup.
Dill, K. (2014, April 1). America’s 50 most trustworthy financial companies. Forbes.com.
Retrieved from: http://www.forbes.com/sites/kathryndill/2014/04/01/americas-50-most-trustworthy-financial-companies/<21 Sep. 2015>
Fulmer, L. (2015). Global card fraud losses reach $16.31 billion – will exceed $35 billion in
2020 according to The Nilson Report. Businesswire.com. Retrieved from: http://www.businesswire.com/news/home/20150804007054/en/Global-Card-Fraud-Losses-Reach-16.31-Billion <7 June 2016>
Niederkorn, M., Bruno, P., Hou, G., Istace, F., & Bansal, S. (2015). Global payments 2015: A
healthy industry confronts disruption. McKinsey & Company.
Miller, N.L. (2014, February 10). Most innovative companies 2014: The world’s top 10 most
innovative companies in finance. Fast Company. Retrieved from: http://www.fastcompany.com/most-innovative-companies/2014/industry/finance <21 Sep. 2015>
