Aniket...Citibank

8/8/2019 Aniket...Citibank

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(Session: 2009-2011)Assignment

Of

International Marketing

Submitted To: Submitted By:

Prof. Uddeepan Chatterjee Aniket Bushal

Kunal Assudani

Rohit Patel


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Introduction to Sector:

The last decade has seen many positive developments in the Indian bankingsector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry ofFinance and related government and financial sector regulatory entities, have made

several notable efforts to improve regulation in the sector. The sector now comparesfavourably with banking sectors in the region on metrics like growth, profitability and nonperforming assets (NPAs). A few banks have established an outstanding track record ofinnovation, growth and value creation. This is reflected in their market valuation.

Opportunity and challenges for the Players:

The bar for what it means to be a successful player in the sector has been raised. Fourchallenges must be addressed before success can be achieved. First, the market isseeing discontinuous growth driven by new products and services that includeopportunities in credit cards, consumer finance and wealth management on the retail

side, and in fee-based income and investment banking on the wholesale banking side.These require new skills in sales & marketing, credit and operations. Second, banks willno longer enjoy windfall treasury gains that the decade-long secular decline in interestrates provided. This will expose the weaker banks. Third, with increased interest inIndia, competition from foreign banks will only intensify. Fourth, given the demographicshifts resulting from changes in age profile and household income, consumers willincreasingly demand enhanced institutional capabilities and service levels from banks.

One of the three scenario will play out by 2010:

The interplay between policy and regulatory interventions and management strategieswill determine the performance of Indian banking over the next few years. Legislativeactions will shape the regulatory stance through six key elements: industry structure andsector consolidation; freedom to deploy capital; regulatory coverage; corporategovernance; labour reforms and human capital development; and support for creatingindustry utilities and service bureaus.Specifically, at one extreme, the sector could account for over 7.7 per cent of GDP withover Rs.. 7,500 billion in market cap, while at the other it could account for just 3.3 percent of GDP with a market cap of Rs. 2,400 billion. Banking sector intermediation, asmeasured by total loans as a percentage of GDP, could grow marginally from its currentlevels of ~30 per cent to ~45 per cent or grow significantly to over 100 per cent of GDP.In all of this, the sector could generate employment to the tune of 1.5 million comparedto 0.9 million today. Availability of capital would be a key factor the banking sectorwill require as much as Rs. 600 billion (US$ 14 billion) in capital to fund growth inadvances, non-performing loan (NPL) write offs and investments in IT and humancapital upgradation to reach the high-performing scenario.

Three scenarios can be defined to characterize these outcomes:High performance: In this scenario, policy makers intervene only to the extent

required to ensure system stability and protection of consumer interests, leaving


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managements free to drive far-reaching changes. Changes in regulations and bankcapabilities reduce intermediation costs leading to increased growth, innovation andproductivity. Banking becomes an even greater driver of GDP growth and employment andlarge sections of the population gain access to quality banking products. Management is able tooverhaul bank organizational structures, focus on industry consolidation and transform thebanks into industryshapers.

Evolution: Policy makers adopt a pro-market stance but are cautious in liberalising theindustry. As a result of this, some constraints still exist. Processes to create highlyefficient organisations have been initiated but most banks are still not best-in-classoperators. Thus, while the sector emerges as an important driver of the economy andwealth in 2010, it has still not come of age in comparison to developed markets.Significant changes are still required in policy and regulation and in capability-buildingmeasures, especially by public sector and old private sector banks.

Stagnation: In this scenario, policy makers intervene to set restrictive conditions andmanagement is unable to execute the changes needed to enhance returns toshareholders and provide quality products and services to customers. As a result,growth and productivity levels are low and the banking sector is unable to support afast-growing economy. This scenario sees limited consolidation in the sector and mostbanks remain sub-scale. New private sector banks continue on their growth trajectory of25 per cent. There is a slowdown in PSB and old private sector bank growth. The shareof foreign banks remains at 7 per cent of total assets. Banking sector value add,meanwhile, is only 3.3 per cent of GDP.

Introduction to the Company:

Citibank, a major international bank, is the consumer banking arm of financial servicesgiant Citigroup. Citibank was founded in 1812 as the City Bank of New York, laterFirstNational City Bank of New York. As of March 2010, Citigroup is the third largest bankholding company in the United States by domestic deposits, after Bank of America andJP Morgan Chase.

Citibank has retail banking operations in more than 100 countries and territories aroundthe world. More than half of its 1,400 offices are in the United States. In addition to thestandard banking transactions, Citibank offers insurance, credit card and investment

products. Their online services division is among the most successful in the field,claiming about 15 million users.

As a result of the global financial crisis of 20082009 and huge losses in the value of itssubprime mortgage assets, Citibank was rescued by the U.S. government under plansagreed for Citigroup. On November 23, 2008, in addition to initial aid of $25 billion, afurther $25 billion was invested in the corporation together with guarantees for riskyassets amounting to $306 billion.


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Citibank India:

History

Established 108 years ago in Kolkata, Citibank has a long history in India.

Currently it is the largest foreign direct investor in financial services. Citibank has a totalcapital commitment of approximately USD 4 Billion in its onshore banking and financialservices business and its principal and alternate investment program in India.

It operates 42 full-service Citibank branches in 30 cities and over 450 ATMs across thecountry. Citibank is an employer of choice to over 8,000 people, and indirect employerto more than 20,000 others. It is also the largest taxpayer in India among internationalfinancial institutions.

Products and services

Citi offers consumers and institutions a broad range of financial products andservices, including consumer banking and credit, corporate and investment banking,securities brokerage, and wealth management. Citi's franchise in India includesbusinesses such as equity brokerage, equities distribution, private banking (Citi PrivateBank) and alternate investments and private equity (CVCI).

Citi Group Segment

CitiCorp

Regional

Consumer

Banking

- Retail

Banking, Local

commercial

banking

-Branch Invest-

ment service

-Branch based

financial

advisor

Institutional

Client Group

-Securities &

banking

-Transact-ional

Services

Citi Holdings

-Brokeage &

asset

management.

-Local consumer

lending

-Special assets

pool

Corporate /Others

-Treasury

operations and

technology.

-Discontinued

operations


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Awards won in 2010

y Best Consumer Internet Bank in India by Globalfinance in year 2009 and 2010.

y "Excellence in Internet Banking" for the year 2009 in The Asian BankerE

xcellence in Retail Financial Services Awards Programme.

y FinanceAsia recognized Citi as the Best Foreign Investment Bank in India

Financials of Company:

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF INCOMECitigroup Inc. and Subsidiaries

Year ended December 31

In millions of dollars, except per-share amounts 2009 2008 2007

Revenues

Interest revenue $76,635 $106,499 $121,347

Interest expense 27,721 52,750 75,958

Net interest revenue $ 48,914 $ 53,749 $ 45,389

Commissions and fees $ 17,116 $ 10,366 $ 20,068

Principal transactions 3,932 (22,601) (12,347)

Administration and other fiduciary fees 5,195 8,222 8,860

Realized gains (losses) on sales of investments 1,996 679 1,168

Other than temporary impairment losses on investments (1)

Gross impairment losses (7,262) (2,740)

Less: Impairments recognized in OCI 4,356

Net impairment losses recognized in earnings (1) $ (2,906) $ (2,740) $

Insurance premiums $ 3,020 $ 3,221 $ 3,062

Other revenue 3,018 703 1 1,100

Total non-interest revenues $ 31,371 $ (2,150) $ 31,911

Total revenues, net of interest expense $ 80,285 $ 51,599 $ 77,300


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Provisions for credit losses and for benefits and claims

Provision for loan losses $ 38,760

$ 33,674 $ 16,832

Policyholder benefits and claims 1,258 1,403 935

Provision for unfunded lending commitments 244 (363) 150

Total provisions for credit losses and for

benefitsand claims $ 40,262 $ 34,714 $ 17,917

Operating expenses

Compensation and benefits $ 24,987 $ 31,096 $ 32,705

Premises and equipment 4,339 5,317 4,837

Technology/communication 4,573 5,993 5,620

Advertising and marketing 1,415 2,188 2,729

Restructuring (113) 1,550 1,528

Other operating 12,621 23,096 11,318

Total operating expenses $ 47,822 $ 69,240 $ 58,737

Income (loss) from continuing operations

before income taxes $ (7,799) $ (52,355) $ 646

Provision (benefit) for income taxes (6,733) (20,326) (2,546)

Income (loss) from continuing operations $ (1,066) $ (32,029) $ 3,192

Discontinued operations

Income (loss) from discontinued operations $ (653) $ 784 $ 1,052

Gain on sale 102 3,139

Provision (benefit) for income taxes (106) (79) 344

Income (loss) from discontinued operations,

Net of taxes $ (445) $ 4,002 $ 708

Net income (loss) before attribution of


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noncontrolling interests $ (1,511) $ (28,027) $ 3,900

Net income (loss) attributable to noncontrolling

interests 95 (343) 283

Citigroups net income (loss) $ (1,606) $ (27,684) $ 3,617

Basic earnings per share (2)

Income (loss) from continuing operations $ (0.76) $ (6.39) $ 0.53


net of taxes (0.04) 0.76 0.15

Net income (loss) $ (0.80) $ (5.63) $ 0.68

Weighted average common shares outstanding 11,568.3 5,265.4 4,905.8

Diluted earnings per share (2)

Income (loss) from continuing operations $ (0.76) $ (6.39) $ 0.53


net of taxes (0.04) 0.76 0.14

Net income (loss) $ (0.80) $ (5.63) $ 0.67

Adjusted weighted average common shares

outstanding 12,099.0 5,768.9 4,924.0

CONSOLIDATED BALANCE SHEET Citigroup Inc. and Subsidiaries

December 31

In millions of dollars, except shares 2009 2008

Assets

Cash and due from banks (including segregated

cash and other deposits) $ 25,472 $ 29,253

Deposits with banks 167,414 170,331


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Federal funds sold and securities borrowed or

purchased under agreements to resell

(including $87,837 and $70,305 as of December 31, 2009 and

December 31, 2008, respectively, at fair value) 222,022 184,133

Brokerage receivables 33,634 44,278

Trading account assets (including $111,219 and $148,703

pledged to creditors at December 31, 2009 and

December 31, 2008, respectively)

342,773 377,635

Investments (including $15,154 and $14,875 pledged

to creditors at December 31, 2009 and December 31, 2008,

respectively and $246,429

and $184,451 at December 31, 2009 and

December 31, 2008, respectively, at fair value)

306,119 256,020

Loans, net of unearned income

Consumer (including $34 and $36 at fair value

as of December 31, 2009 and December 31, 2008, respectively)

424,057 481,387

Corporate (including $1,405 and $2,696 at

December 31, 2009 and December 31, 2008,

respectively, at fair value) 167,447 212,829

Loans, net of unearned income $ 591,504 $ 694,216

Allowance for loan losses (36,033) (29,616)

Total loans, net $ 555,471 $ 664,600

Goodwill 25,392 27,132

Intangible assets (other than MSRs) 8,714 14,159

Mortgage servicing rights (MSRs) 6,530 5,657

Other assets (including $12,664 and $21,372as of December 31, 2009 and December 31, 2008


Total assets $1,856,646 $1,938,470

Liabilities

Non-interest-bearing deposits in U.S. offices $ 71,325 $ 55,485


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Interest-bearing deposits in U.S.

offices (including $700 and $1,335 at

December 31, 2009 and December 31, 2008,

respectively, at fair value)

232,093 234,491

Non-interest-bearing deposits in offices outside the U.S. 44,904 37,412

Interest-bearing deposits in offices outside the U.S

. (including $845 and $1,271

at December 31, 2009 and December 31, 2008,


Total deposits $ 835,903 $ 774,185

Federal funds purchased and securities

loaned or sold under agreements to

repurchase (including $104,030 and $138,866 as of

December 31, 2009 and

December 31, 2008, respectively, at fair value)

154,281 205,293

Brokerage payables 60,846 70,916

Trading account liabilities 137,512 165,800

Short-term borrowings (including $639 and $17,607



Long-term debt (including $25,942 and $27,263



Other liabilities (including $11,542 and $13,567

as of December 31, 2009 and December 31, 2008,


Total liabilities $1,701,673 $1,794,448

Stockholders equity

Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares: 12,038 at December 31,

2009, at aggregate liquidation value $ 312 $ 70,664

Common stock ($0.01 par value; authorized shares: 60 billion), issued shares: 28,626,100,389 at

December 31, 2009

and 5,671,743,807 at December 31, 2008 286 57


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Additional paid-in capital 98,142 19,165

Retained earnings 77,440 86,521

Treasury stock, at cost: 2009142,833,099 shares

and 2008221,675,719 shares (4,543) (9,582)

Accumulated other comprehensive income (loss) (18,937) (25,195)

Total Citigroup stockholders equity $ 152,700 $ 141,630

Noncontrolling interest 2,273 2,392

Total equity $ 154,973 $ 144,022

Total liabilities and equity $1,856,646 $1,938,470


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Past performance of Company:

2007:

There were a number of highlights in 2007, including record performance of ourInternational Consumer, Global Wealth Management and TransactionServicesbusiness segments.

These positives, however, were offset by disappointing results in our Markets &Banking business, which was significantly affected by write-downs related to directsubprime exposures, including CDOs, leveraged lending, and by significantly highercredit costs in our U.S. Consumer business. In 2007, Citigroup earned $3.6 billion from

continuing operations on revenues of $81.7 billion. Income andE

PS were both down83% from 2006 levels.

Customer volume growth was strong, with average loans up 17%, averagedeposits up 20% and average interest-earning assets up 29% from year-ago levels.International Cards purchase sales were up 37%, while U.S. Cards sales were up 8%.In Global Wealth Management, client assets under fee-based management were up27%. Branch activity included the opening or acquisition of 712 new branches during2007 (510 internationally and 202 in the U.S.). We also completed several strategicacquisitions or investments (including Nikko Cordial, Egg, Quilter, GFU, GrupoCuscatlan, ATD, and Akbank), which were designed to strengthen our franchises.

Revenues of $81.7 billion decreased 9% from 2006, primarily driven bysignificantly lower revenues in CMB due to write-downs related to subprime CDOs andleveraged lending. Revenues outside of CMB grew 14%. Our international operationsrecorded revenue growth of 15% in 2007, including a 28% increase in InternationalConsumer and a $1.8 billion increase in International GWM, partially offset by a 9%decrease in International CMB. Net interest revenue grew 19% from 2006, reflectingvolume increases across all products.


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Operating expenses increased 18% from the previous year primarily driven by

the impact of acquisitions, increased business volumes, charges related to the structuralexpense initiative and the impact of foreign exchange.

Our equity capital base and trust preferred securities grew to $137.2 billion at December31, 2007. Stockholders equity decreased by $6.2 billion during 2007 to $113.6 billion,which included the distribution of $10.7 billion in dividends to common shareholders.Citigroup maintained its well-capitalized position with a Tier 1 Capital Ratio of 7.12% atDecember 31, 2007. Return on common equity was 2.9% for 2007.

On January 14, 2008, the Board decreased the quarterly dividend on theCompanys common stock to $0.32 per share. This new dividend level will allow theCompany to reinvest in growth opportunities and properly position the Company for bothfavorable and unfavorable economic conditions.

Credit costs increased $10.6 billion from year-ago levels, driven by an increase inNCLs of $3.1 billion and a net charge of $7.5 billion to build loan loss reserves.

U.S. Consumer credit costs increased $7.1 billion from year-ago levels, driven bya change in estimate of loan losses, increased NCLs and net builds to loan lossreserves. The increases were due to a weakening in credit indicators and sharply higherdelinquencies on first and second mortgages related to the deterioration in the U.S.housing market. The NCL ratio increased 27 basis points to 1.46%.

International Consumer credit costs increased $2.3 billion, reflecting a change inestimate of loan losses, along with volume growth and credit weakness in certaincountries, the impact of recent acquisitions, and the increase of NCLs in JapanConsumer Finance due to grey zone issues.

Markets & Banking credit costs increased $1.0 billion, driven by higher NCLsassociated with subprime-related direct exposures. Corporate cash-basis loansincreased $1.2 billion from year-ago levels to $1.8 billion.

2008:

Throughout 2008, in the midst of a global economic downturn and global financialcrisis, they remained focused on Getting Fit. They have made and continue to makesignificant progress in strengthening Citis capital and structural liquidity; reducing thebalance sheet, expenses and headcount; and decreasing risk across the organization.

They raised significant capital from private investors as well as through the TARP.They increased there Tier 1 capital ratio to approximately 11.9 percent at year end,making Citis Tier 1 among the highest in the industry.


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They increased there structural liquidity to 66 percent of total assets in the final quarterof 2008.

They reduced there assets from a peak of almost $2.4 trillion down to about $1.9trillion and completed 19 divestitures.

In the fourth quarter of 2008, they reduced there business-as-usual expenses by 16percent from the fourth quarter of 2007 to $12.8 billion.

They made difficult but necessary decisions to reduce headcount and ended the yearwithheadcount of 323,000, down from 375,000.

They reorganized operations and technology and other functions to create a morestreamlinedorganization with greater accountability for performance.

And They added some of the most seasoned and experienced talent in the industry toCitisleadership ranks.

Restructuring Citi

They accelerated the second stage of there drive for value creationRestructuringCitiby realigning Citi into two operating unitsCiticorp and Citi Holdings. Thisstructure highlights the value of our core franchise and reflects the rapid and dramaticchanges in funding markets, operating models, and client needs.

The new structure simplifies Citi, and sets out a clear path to profitability and valuecreation. With lower risk and a streamlined set of businesses, they expect Citicorp to bea high-return and highgrowth business. With Citi Holdings, they will be able to tightenthere focus on risk management and credit quality. And, with the right structure andmanagement in place, well be able to turn our attention to the third stage of our growthstrategy: Maximizing Citi.

2009:

Citigroups Actions in Response to Market ChallengesDuring 2009, Citigroup sought to respond to market challenges and the

profound changes in the market environmentchanges in funding markets, operatingmodels and client needsincluding:Citi restructured into two primary operating segments

Citicorp and Citi Holdings.As described above, Citicorp comprises Citis corefranchise, while CitiHoldings consists of non-core businesses and assets that Citi


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Citigroup increased its allowance for loan losses. During 2009, Citi added a netbuild of $8.0 billion to its allowance for loanlosses. The allowance for loan losses was$36 billion at December 31, 2009, or6.1% of loans, compared to $29.6 billion, or 4.3%of loans, at year-end 2008.With the adoption of SFAS 166 and 167 in the first quarter of2010, loan lossreserves would have been $49.4 billion, or 6.6% of loans, each as of

December31, 2009 and based on current estimates. The consumer loan loss reservewas$28.4 billion at December 31, 2009, representing 14.1 months of concurrentcharge-off coverage, versus 13.1 months at December 31, 2008.

Citi began to make selected investments in its core businesses. Within RegionalConsumer Banking, Citi began making selectedinvestments in its core businesses inthe latter part of 2009. For example,in Asia, Citi invested in new customer acquisition inthe emerging affluentsegment and in card usage promotion. Citigroup also continued toinvest in consumer banking technology. Within Transaction Services, Citi continued toinvest in technology tosupport its global network, including its investor services suite ofproducts,prepaid and commercial cards offerings and launch of a new front end online

banking technology that provides a diverse set of functionality beyond traditionaltransaction management and reporting. These and similarinvestments have increased,and will likely continue to increase, Citisoperating expenses.

Future Plans of Company:

While showing signs of improvement, the macroeconomic environment going into 2010remains challenging, with U.S. unemployment still elevated. The U.S. government hasindicated its intention to continue scaling back programs put in place to support themarket during 2008 and 2009. The impact of the U.S. governments exit from many ofthese programs is a source of uncertainty in 2010, as is the future course of monetarypolicy. In addition, the potential impact of new laws and regulations (e.g., The CreditCard Accountability Responsibility and Disclosure Act of 2009 (CARD Act)), potentialnew capital standards, and other legislative and regulatory initiatives is a source ofsignificant additional uncertainty regarding the business and market environment.

Citigroup is maintaining a cautious stance in light of this uncertain market environmentand continued macroeconomic headwinds. As it enters 2010, Citi is focused onmaintaining high levels of capital and liquidity, rigorous risk management practices andcost discipline. In Citi Holdings, Citi will continue to focus on reducing assets, whichcould result in lower revenues and operating expenses in 2010. In Citicorp, the focuswill remain on serving the companys core institutional, corporate and retail client basein the U.S. and around the world. Citi will continue to focus on credit loss mitigation andexpense control, and may continue to invest in areas such as Asia and Latin America,where economic recovery and growth appear to be taking hold. Operating expensesmay grow modestly in Citicorp in 2010, as a portion of the cost reductions achieved inCiti Holdings is re-invested in the core franchise.


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Credit costs will likely remain a significant driver of Citigroups results in 2010,particularly in North America, where credit trends will largely depend on the broadermacroeconomic environment, as well as the impact of industry factors such as CARD

Act implementation and the outcome of the Home Affordable Modification Program(HAMP) and other loss mitigation efforts. See Results of OperationsCiticorpNorthA

mericaR

egionalConsumer Banking, Citi HoldingsLocal Consumer Lending andManaging Global RiskCredit Risk for additional information. Citi expects U.S.consumer net credit losses to increase modestly in the first quarter of 2010 from fourthquarter 2009 levels, due in part to expected seasonal patterns, after which there may besome slight improvement. However, net credit losses in the second half of 2010 will bedependent on the macroeconomic environment and success of the companys ongoingloss mitigation efforts. Changes to Citigroups consumer loan loss reserve balances willcontinue to reflect the losses embedded in Citis consumer loan portfolio due tounderlying credit trends as well as the impact of Citis forbearance programs. Citicurrently expects NIM to remain under pressure due to its enhanced liquidity positionand ongoing de-risking of the balance sheet.

The enormous long-term promise of Citigroup should be clear because we have mademuch progress with all the fundamentals, and because our operating businesses inCiticorp have maintained good revenue momentum. The key issues affecting short-termearnings are not internal but environmental: the cost of credit and job creation. They willdetermine when they can achieve sustained profitability. Meanwhile, they are confidentthey can navigate whatever challenges they confront and still keep Citi in a position tocapitalize on a turnaround in the economy. They believe they can do so byconcentrating on these priorities in 2010:

Preserving our high levels of capital, liquidity and reserves Mitigating credit costs Sustaining the momentum of our Citicorp operating businesses from their strong 2009performances Continuing the reductions of assets in Citi Holdings Investing strategically in innovation and the Citicorp businesses that drive Citisearnings potential Developing further our already leading global position, especially in emerging markets Maintaining and expanding our role as a constructive force in the world, shaping publicpolicy debates and meeting economic and social challenges. All of this is importantto our business interests but also is intrinsically the right thing to do.

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Aniket...Citibank