Citibank-Citicorp-Citigroup…The History: Part 1

As a precursor to covering Citigroup (NYSE: C) stock, I feel a little history lesson is due.  The history lesson will help to bring us up to today in terms of where they have been, and where the company is headed in the future.  I have been in and out of this stock several times over the years, and have family who have worked for and retired from the company.  There was a time when my family lived and breathed First National and Citibank; a time when this company showed genuine care and passion for what it did and its employees did.  The company no longer holds its employees in high regard, but that will be gone into more in future articles.  I believe it is important to know as much about the company you invest in as possible.  That was never truer than it is right now.  For now, let us look at the history of one of the largest Banking conglomerates ever.

The history of Citibank starts with the City Bank of New York, which was chartered by the State of New York on June 16, 1812, with $2 million of capital.  The Bank began its growth by serving a group of New York businesses and merchants, and opened for business on September 14 of that year. Samuel Osgood was elected as the first President of the company.  The company’s name was changed to The National City Bank of New York in 1865 after it joined the new U.S. national banking system, and it became the largest American bank by 1895.  It became the first contributor to the Federal Reserve Bank of New York in 1913, and the following year it inaugurated the first overseas branch of a U.S. bank in Buenos Aires, Argentina.  The Bank was active in plantation economies, such as the Cuban sugar industry.

The 1918 purchase of U.S. overseas bank International Banking Corporation helped it become the first American bank to surpass $1 billion in assets, and it became the largest commercial bank in the world in 1929.  As it grew, the bank became a leading innovator in financial services, becoming the first major U.S. bank to offer compound interest on savings in 1921.  Several years later in 1928 they began offering unsecured personal loans; this was followed by customer checking accounts in 1936.  The bank changed its name to The First National City Bank of New York in 1955, and the final innovation through that period of growth became the negotiable certificate of deposit in 1961.  The bank then proceeded to shorten its name in 1962 to First National City Bank on the 150th anniversary of the company’s foundation.

First National City Bank entered the leasing and credit card sectors soon afterwards, and its introduction of USD certificates of deposit in London marked the first new negotiable instrument in the market since 1888.  In another stroke of genius the bank introduced its First National City Charge Service credit card; popularly known as the “Everything Card” in 1967 and eventually known as Mastercard.

In 1976, under the leadership of CEO Walter Wriston, First National City Bank and its holding company First National City Corporation was renamed as Citibank, N.A. / Citicorp.  Shortly afterward, the bank launched the Citicard, which pioneered the use of 24-hour ATMs.  As the bank’s expansion continued, the Narre Warren-Caroline Springs credit card company was purchased in 1981. John S. Reed was elected CEO in 1984, and Citi became a founding member of the Clearing House Automated Payment System, or CHAPS clearing house in London.  Under his leadership, the next 14 years would see Citibank become the largest bank in the United States, the largest issuer of credit cards and charge cards in the world, and expand its global reach to over 90 countries.

On April 6, 1998, a merger between Citicorp and Travelers Group was announced to the world, creating a $140 billion dollar firm with assets of almost $700 billion dollars.  The deal would enable Travelers to market mutual funds and insurance to Citicorp’s retail customers while giving the banking divisions’ access to an expanded client base of investors and insurance buyers.

At the time of merger, Travelers Group was a diverse group of financial concerns that were brought together under Chief Executive Officer Sanford Weill.  Its roots came from Commercial Credit, a subsidiary of Control Data Corporation that was taken private by Weill in November 1986 after taking charge of the company earlier that year.  Two years later, Weill orchestrated the buyout of Primerica; a conglomerate that had already purchased life insurer A L Williams as well as stock broker Smith Barney.  The new company took the Primerica name, and employed a cross selling strategy, leveraged so that each of the entities within the parent company aimed to sell each other’s services.  Its non-financial businesses were spun off.

In September 1992, Travelers Insurance formed a strategic alliance with Primerica that would lead to its consolidation into a single entity in December 1993.  Travelers had suffered from poor real estate investments and sustained significant losses in the aftermath of Hurricane Andrew, by all accounts.  The group became Travelers Inc.  It offered Property & casualty and life & annuities underwriting capabilities which added to the business.  Meanwhile, the distinctive Travelers red umbrella logo, which was also acquired in the deal, was applied to all the businesses within the newly named organization.  During this period, Travelers acquired Shearson Lehman a retail brokerage and asset management firm that was headed by Weill until 1985, and merged it with Smith Barney.  Finally, in November 1997, Travelers Group, renamed again in April 1995 when they merged with Aetna Property and Casualty, Inc. made the $9 billion deal to purchase Salomon Brothers, a major bond dealer and investment bank.  At this point, we arrive at the merger, which will be covered more in depth with part 2 of the article tomorrow on King of All Trades.