Citi's Long History of Overreach, Then Rescue

Vikram Pandit says his company has made money this year.
Vikram Pandit says his company has made money this year. (Manuel Balce Ceneta - AP)
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By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, March 11, 2009

When Citicorp and Travelers Group agreed on a historic merger in 1998, the heads of the two companies placed a courtesy call to inform the Treasury Department. Then they held a news conference to suggest that Congress change the law to allow their union. Congress soon complied.

It was a signature moment for a bank that has long taken big risks with the conviction that it is irreplaceable. Over the past century, Citigroup has repeatedly launched new strategies to make money, then stumbled and lost money, forcing the government to restore its health.

The 1998 merger, an attempt to create a one-stop shop for financial projects, ultimately faltered.

Citigroup, with the help of tens of billions of dollars in government aid, is now dismantling itself, leaving behind a company that will resemble the old Citicorp, a bank focused on serving multinational corporations.

The company sits beneath the Treasury's thumb, its actions scrutinized by an angry Congress. Its market value, more than $140 billion at the time of the merger, is well below $10 billion.

Ben S. Bernanke, chairman of the Federal Reserve, reiterated yesterday that large banks like Citigroup will receive all necessary public support to survive. Treasury Secretary Timothy F. Geithner repeated the point yesterday on Charlie Rose's television interview show but refused to say that a failure was impossible. Still, the government in recent days has increasingly moved toward a position of guaranteeing the survival of certain private companies, including Citigroup.

Citigroup yesterday released a memo by its chief executive, Vikram Pandit, that said it was profitable during the first two months of 2009, its best performance since summer 2007. The stock price rose.

"Over time, the markets will recognize the many strengths of Citi," Pandit wrote.

The company was just another New York bank until the last decade of the 19th century, when a new chief executive, James Stillman, began to win the business of an emerging class of giant corporations. Those firms were concentrating the control of American industry -- and eventually global industry -- on the island of Manhattan. Citigroup would prosper as their partner. A pattern was set. The city's business community and the bank would push further than their rivals, and prosper more, and every so often they would stumble badly. "It became a great bank because they were innovators," said Richard Sylla, an economics professor at New York University who specializes in the history of financial institutions. "They were early to become a great corporate bank, they were early to get overseas, they were early to get into the investment banking business, they were early to get into consumer lending."

The company led American banks overseas in 1914, laying the groundwork for its later dominance. It also established a branch in Moscow weeks before Lenin came to power. It established branches in China -- and lost those, as well. And it lost vast sums lending to Cuban sugar plantations.

The company responded then, as it would half a century later, by turning to the American consumer.

In the 1920s, a new chief executive named Charles Mitchell pushed the company into the business of selling stock to the middle class. Other banks also were starting to sell stock, but Mitchell, known as "Sunshine Charlie," was better at it. The company served as a massive pipeline between Wall Street and investors, and Sunshine Charlie kept driving his sales force right up until the market collapsed.

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