23 August, 2009

United States Bank Mergers & Acquisitions (Citigroup)

Photo: A Citibank branch at Rockefeller Center, Manhattan.

Citigroup Inc.

Citibank, NA

Citibank is one of the oldest banks in the U.S. It was founded in 1812 as the City Bank of New York.   By 1814, the U.S. federal government had entrusted the new bank as a depository for part of the government’s funds.  As such, the bank became a holder of the nation’s ultimate bank reserves.

The City Bank of New York changed its name in 1865 to The National City Bank of New York to emphasize its new national charter. Prior to the passing of the National Banking Act of 1863, the banking industry in the U.S. was archaic to say the least. Well over 1,000 private banks issued banknotes with little regulation and monitoring. The 1863 Act distinguished between "national" banks that were chartered and regulated by the Federal government; and "state" banks that were authorized by their state governments. Under the new Act, only national banks were permitted to issue banknotes. Some state banks at the time opted to apply for a national charter, while others simply kept their "state" status. 

In 1897, National City created the foreign exchange department to provide trade finance and international payment services to its growing list of corporate clients, which included Standard Oil, Union Pacific (railway), American Sugar Refining, International Harvester (farm machinery) and Armour & Co (meatpacking).  Through its many correspondent agreements with foreign banks (including London City and Midland, The Hongkong and Shanghai Banking Corp. and Deutsche Bank etc.), National City by 1902 claimed to be able to wire any amount of money to any city in the world within 24 hours.

Also during the 1890s, National City Bank became the main banker to the Rockefellers and their Standard Oil Empire, setting in motion the transformation of the former small city bank to one closely linked with America’s corporate giants and global finance.  At around the same time, National City also formed a close alliance with private bank Kuhn, Loeb & Co., which at the time was a prominent investment underwriter with close familial and business ties with other powerful Jewish private banks in the U.S., London, Hamburg and Frankfurt.   In 1904, National City Bank was part of the consortium that financed the construction of the Panama Canal.  In the same year, it launched its traveller’s cheque product.

Even though New York is synonymous with global finance, American joint-stock banks practically had zero operation outside of the U.S.  Thanks to a complex web of federal and state banking regulations, both federally-chartered and New York-state-chartered banks were actually prohibited from establishing branches outside of the U.S., this made for a peculiar situation under which the banks based in New York City, the rapidly emerging financial centre of the world, did not have any foreign branch at all.

In 1911, National City Bank created a state-chartered investment affiliate called the National City Company to acquire stakes in banks in New York, Washington D.C., Boston, Philadelphia, New Orleans, Kansas City and Indianapolis.

In 1914, the ban on overseas branches was removed and National City bank promptly opened a branch in Buenos Aires, followed by Uruguay, Brazil and Cuba in 1915.  It also bought Cuba’s Banco de Habana.  Later in 1915, National City acquired Connecticut’s International Banking Corporation, immediately gaining a network of branches in the Far East and Southeast Asia.

Up to this point, National City was still essentially a corporate bank serving big corporations, but this all changed in 1921, when it merged with the Commercial Exchange Bank and Second National Bank, launching retail (personal) banking service for the first time.  In 1927, personal banking service was expanded to some of National City’s foreign branches.  By 1929, the bank had ascended to the world’s largest joint-stock bank.

Soon though, the boom times ended suddenly when the U.S. stock market and real estate bubble burst, plunging the American economy into a decade of depression.  In 1933, the U.S. Congress passed the Glass-Steagall Act, banning commercial banks from engaging in risky investment operations.  To comply with this new restriction, the National City Company created in 1911 to hold minority stakes in non-New York banks was dissolved in 1934.

The 1930s ended with the onset of World War II.  Between 1939 and 1942, one by one the bank’s branches in Italy, Switzerland, Belgium, Spain, France, China, Hong Kong, Japan, Philippine, Singapore and Burma were shut.

National City began to cautiously re-launch some operations in Europe and the Far East in 1946, after the end of World War II.  The 1950s were boom times in the U.S., as exports soared while Europe and Asia rebuilt from the war’s devastation.  The rise of the auto culture and the influx of European immigrants to the U.S. were combined with a national initiative to offer affordable housing for returning veterans, resulting in a massive surge in construction of roads and housing, and for demand for cars, raw materials, durable and consumer goods.

In 1955, The National City Bank of New York merged with similarly-named First National Bank of the City of New York (founded in 1863) and the new bank took up a new name The First National City Bank of New York. In 1962, the "New York" reference was dropped from the name.  Throughout the 1950s, First National City opened offices in the Middle East and Africa, but retreated from Cuba in 1959 when Fidel Castro nationalized the nation’s industries and banks.

Following American Express and BankAmerica's lead in launching the new credit card concept in the late 1950s, First National City introduced its own credit card in 1967 with the rather foolish name of "Everything" card. Two years later, the product adopted a new name: Master Charge, the precursor of today's MasterCard.

In 1968, a holding company named First National City Corp. was created and First National City Bank became its subsidiary. In 1974, the parent company adopted the new name Citicorp.  In 1976, the subsidiary bank was renamed Citibank, N.A. (for National Association, a reference to its national charter and not “North America”, as many believed).

As computerization arrived in the 1970s, Citibank in 1974 launched the Citicard services, allowing its customers to cash a Citibank cheque in seconds at any of its New York City network of 230 branches.  In 1977, the bank’s first ATM machine was installed, giving clients 24-hour access to cash withdrawal.

Following the savings and loan (also known as S&L's, or "thrifts") crisis in the early 1980's, Citicorp acquired the Fidelity Savings and Loan Association of San Francisco in 1982.  This marked Citibank’s first investment of another bank outside of the New York state since 1934.  Within a few months, Citibank further acquired Chicago’s First Federal Savings and Loan and New Biscayne Savings and Loan Association of Florida.

Also in 1982, Citibank launched the Citigold product in Hong Kong for the rising mass affluent market (middle-class professionals). Other emerging markets, however, proved tricky for global banks like Citibank, for in 1987 a sovereign debt crisis that started in Brazil quickly spread to many other Third-World countries.  Citibank wrote down USD $3-billion of bad debts and was wounded badly.

Recent transaction(s):
  • In 1998, Travelers Group Inc. and Citicorp agreed to a USD $71.0-billion merger plan, forming the new Citigroup Inc. Securities underwriter Salomon Smith Barney, part of the Travelers Group, thus became a part of the new Citigroup.
  • In 2000, Citigroup bought the investment banking operations of British merchant bank Shroders plc for GBP 1.35-billion (USD $2.21-billion).
  • Later in 2000, Citigroup acquired consumer finance and commercial lender Associates First Capital Corp. for USD $31.1-billion.
  • In 2001, Citi bought European American Bank for USD $1.6-billion from Dutch bank ABN AMRO Holding NV, and also assumed responsibility for EAB's USD $350-million in preferred shares.
  • Also in 2001, Citi bought the 1,500-branch strong Grupo Financiero Banamex-Accival (Banacci) for USD $12.5-billion. Following the purchase, Mexico's No. 1 bank was renamed Grupo Financiero Banamex. Banamex used to be known as Banco Nacional de México.
  • Also in 2001, Citi bought 88% of Poland's Bank Handlowy w Warszawie S.A. for USD $900-million.
  • In 2002, Citi spun off Travelers' property and casualty insurance divisions into Travelers Property Casualty Corp. The insurance company was promptly taken over by St. Paul Cos. in 2003 for USD $16.84-billion. The combined entity was renamed St. Paul Travelers Cos.
  • In 2002, Citi bought California's Golden State Bancorp and its subsidiary California Federal Bank (Cal Fed) for USD $5.8-billion. Cal Fed had 355 branches in California and Nevada.
  • In 2003, Citi bought department store Sears, Roebuck & Co.'s credit card division for USD $3.4-billion.
  • In 2004, Citi bought Korea's No. 6 bank, KorAm Bank for USD $2.73-billion. KorAm operated 225 branches in Korea.
  • In 2005, Citi bought Bryan-College Station, Texas-based First American Bank. Financial terms of the acquisition were not disclosed. First American Bank served more than 120,000 clients through a network of 106 branches in Texas.
  • In 2005, Citigroup sold Travelers Life & Annuity to MetLife Inc. for USD $11.5-billion. With the sale, Citigroup essentially sold off all of the insurance businesses that it acquired from the merger with Travelers Group Inc. Citigroup did retain investment bank Salomon Smith Barney, which was part of Travelers Group when the two financial services firms merged in 1998.
  • In 2005 Citigroup sold almost all of its asset management business in exchange for Legg Mason's broker-dealer and capital markets business, plus USD $2.80-billion in cash and Legg Mason shares. The total value of the transaction was valued at USD $4.37-billion.
  • In 2005, Citi sold CitiCapital's Transportation Finance Business (based in Dallas and Toronto) to GE Commercial Finance for USD $4.6-billion in cash.
  • In 2006, Citi bought a 20% stake in Turkey's No. 3 bank, AkBank, for USD $3.1-billion. AkBank had 674 branches.
  • Also in 2006, Citi bought Grupo Financiero Uno (GFU), Central America's largest credit card issuer. Financial terms were not disclosed. GFU had over 1 million clients, 75 branches and over 100 mini-branches and points-of-sale.
  • Also in 2006, Citigroup led a consortium to buy 85.59% of China's Guangdong Development Bank (GDB) for CNY 24.27-billion (USD $3.06-billion). Citigroup's share in GDB would be 20%. The other partners in the group and their holding in GDB were China Life (20%), State Grid (20%), Citic Trust (12.85%), Puhua (8%) and IBM (4.74%).
  • In December 2006, Citigroup agreed to buy Corporacion UBC Internacional S.A.'s Grupo Cuscatlan banking unit for USD $1.51-billion. Grupo Cuscatlan provided banking, pension and insurance services in El Salvador, Honduras, Nicaragua, Costa Rica and Panama and had more than 1.2 million clients.
  • In 2007, Citi bought British on-line bank Egg Banking plc from Prudential plc for GBP 575-million (USD $1.13-billion). Prudential plc, the 2nd largest life insurer in the U.K., is unrelated to Prudential Financial, Inc. of the United States.
  • In 2007, Citi made a hostile JPY 1.578-trillion (USD $13.58-billion) offer for Japan's No. 3 broker Nikko Cordial Corp. Nikko Cordial held JPY 30-trillion (USD $256-billion) of clients assets and had 109 offices across Japan. In May 2007, Citigroup succeeded in acquiring 61.1% of Nikko Cordial at a cost of USD $7.7-billion.
  • In 2007, Citi agreed to take over Taiwan's Bank of Overseas Chinese (BOOC) for TWD $14.1-billion (USD $426-million). Bank of Overseas Chinese operated a network of over 50 branches in Taiwan.
  • Also in 2007, Citi bought Bisys Group, Inc. for USD $1.45-billion. Citi intended to keep Bisys' fund services and Alternative Investment services divisions and dispose Bisys' retirement and insurance services division to J.C. Flowers & Co. LLC for USD $650-million, making the net cost of the transaction to be USD $800-million. The purchase would make Citi a major player in the hedge fund administration and strengthen its mutual fund services.
  • In 2007, Citi bought Automated Trading Desk (ATD) for USD $680-million (Eur 500-million) in cash and stock. The purchase would double Citi's electronic securities trading capacity. ATD had 120 broker-dealer customers and traded more than 200-million shares every day, or about 6% of the overall NYSE and NASDAQ volume.
  • Also in 2007, Citi made a general offer to buy up the 32% of Nikko Cordial Corp. that it did not own for JPY 530-billion (USD $4.6-billion). Nikko Cordial and Citi's boards of directors both endorsed the offer. Citigroup also applied to list its shares on the Tokyo Stock Exchange.
  • In 2008, amidst write-offs totalling USD $36.7-billion from the U.S. sub-prime mortgage crisis, Citigroup sold most of its commercial leasing and lending unit CitiCapital to GE Capital to free up cash and streamline its operations. The business lines sold were healthcare finance, franchise finance, private label finance, material handling finance, construction equipment finance, bankers leasing and CitiCapital Canada. The units sold had assets of USD $13.4-billion and 160,000 customers. Terms of the deal were not announced. Citi kept its tax exempt finance division.
  • In 2008, Citigroup and State Street Corp. sold CitiStreet LLC, a retirement benefit plan servicing business based in the U.S., to ING Groep for Eur 578-million (USD $895-million). CitiStreet provided record-keeping and administration services for retirement benefit plans.
  • In 2008, Citigroup sold its German retail banking operations to France's Crédit Mutuel for Eur 4.90-billion (USD $7.78-billion) in cash. The German operations sold mainly consisted of Düsseldorf-based Citibank Privatkunden, which had 340 branches, 3.2-million clients, and was the market leader in the German consumer loans sector.
  • Wachovia was rumoured to be on the brink of collapse when the Federal Deposit Insurance Corp. (FDIC) brokered a deal on 2008-09-29 under which Citigroup would buy Wachovia's banking operations and its branches for USD $2.16-billion in stock. Citigroup would take over a USD $312-billion loan pool from Wachovia, and be responsible for the first USD $42-billion of potential losses from the pool; the FDIC would absorb any potential losses beyond the first USD $42-billion. Citigroup would also take over Wachovia's customer deposits. As part of deal, Citigroup would issue USD $12-billion of preferred securities and warrants to the FDIC. Not included in the sale were Wachovia's AG Edwards and Evergreen divisions. Wachovia had been suffering a "silent bank run" from its depositors.
  • Merely four days later, in a bizarre twist of events, Wachovia rescinded the sale to Citigroup and agreed to a USD $15.1-billion buyout from Wells Fargo & Co. Under the new agreement, for each Wachovia share, shareholders would receive 0.1991 share of Wells Fargo, valuing each Wachovia share at about USD $7. Wells Fargo’s offer did not require any financial guarantee from the FDIC, and would also assume all of Wachovia’s preferred stock and debts. Citigroup’s all-stock buyout only valued Wachovia at USD $1 per share. Citigroup immediately launched a lawsuit against Wachovia and Wells Fargo, but dropped it in early October when it became apparent that the Well Fargo-Wachovia merger would proceed with the FDIC's silent approval.
  • Following the lead of Britain’s GBP 37-billion (USD $64-billion) state rescue for its beleaguered banks, the U.S. government unveiled a similar plan on 2008-10-14 in which the U.S. Treasury would invest USD $250-billion in nine major U.S. banks. Citigroup would issue preferred securities to the U.S. government in exchange for USD $25-billion in emergency funding. The preferred stock had no voting right to ensure the government could not influence the banks’ management decision to create an unfair advantage over other banks.
  • In November 2008, merely a month after the initial USD $25-billion government bailout, amidst a global rout on stock prices and consumer confidence, the U.S. government was forced to inject another USD $20-billion into Citigroup to avert its collapse.
  • In late 2008, Citigroup agreed to sell NikkoCiti Trust and Banking Corp. to Mitsubishi-UFJ for JPY 25-billion (USD $278-million).
  • In 2009, Citi agreed to combine its Smith Barney retail brokerage unit with Morgan Stanley’s retail brokerage unit in exchange for USD $2.7-billion in cash. Morgan Stanley would own 51% of the new Morgan Stanley Smith Barney, whereas Citigroup would own the remaining 49%.
  • In 2009, Citi sold its Japanese retail broker Nikko Cordial Securities Inc. and other assets to Japan’s Sumitomo Mitsui Financial Group for a total cash value of JPY 774.5-billion (USD $7.9-billion). The transaction also included the stock and bond underwriting units of Nikko Citigroup, and JPY 28.5-billion of Japanese-listed securities held by Citigroup.
  • In July 2009, investors and common stock shareholders approved two exchange offers designed to bolster Citigroup’s capital position. Under the exchange offers, private investors swapped USD $32.8-billion of preferred securities for common stock. The U.S. government also converted its USD $25-billion of such securities into 7.69-billion common shares. Following the swaps, the U.S. government would hold 34% of Citigroup’s common stock and become its largest single shareholder. Citigroup also proposed a reverse stock-split (i.e. stock consolidation) ranging from a ratio of 1-for-2 to 1-for-30 by mid-2010.
  • Since the start of the U.S. real estate collapse and global banking crisis in 2007, Citigroup has raised over USD $40-billion of fresh capital from private investors, received USD $45-billion of bailout fund from the American government, and secured another USD $300.8-billion of guarantees from the U.S. government against loan losses.
  • In September 2009, Citi sold its Portuguese credit card business to Barclays plc. The unit had 400,000 accounts and EUR 644-million in receivables. Terms were not disclosed.
  • In November 2009, Citi sold the North American business of Diners Club credit cards to the Bank of Montreal for an undisclosed amount.
  • In December 2009, Citi raised USD $17-billion from a common stock issue and another USD $3.5-billion from issuing tangible equity units. Citi then paid back the USD $20-billion bailout fund it received in November 2008. Citi also agreed to exit the USD $300.8-billion of loss protection guaranteed by the government. However, the USD $17-billion stock sale was priced so low that the U.S. government cancelled its plan to sell its stake at a loss. As such, the U.S. government would continue to hold a significant 27% stake in Citi, meaning that a key goal of eliminating the government's holding was not met. Following the stock issue, Citi's outstanding common stock ballooned to 28.3-billion shares.
  • In February 2010, Citi sold its Italian credit card business to Barclays plc. The unit had 197,000 accounts and EUR 234-million (GBP 204-million) in receivables. Terms were not disclosed.
  • In April 2010, Citi raised USD $579-million from floating and selling 57% of its multi-layer marketing subsidiary Primerica.  Primerica used pymarid marketing strategy to sell life insurance, mutual funds and annuities. Following the IPO, Citi retained 43% of Primerica, which was subsequently fully divested between April and December 2011.
  • In June 2010, CitiFinancial Auto sold a USD $3.2-billion (Eur 2.59-billion) auto loan portfolio to a unit of Spain's Banco Santander at 99% of the portfolio's face value.
  • In September 2010, Citi sold its 80% stake in Student Loan Corp. to Discover Financial Services for USD $480-million. Citi would book a USD $500-million loss on the sale but it would remove USD $32-billion of risky student loans off the bank's books.
  • In November 2010, Citi and Wells Fargo & Co. settled out of court over the acquisition of beleaguered bank Wachovia Corp. (see entry in 2008). Under the terms of the settlement, Wells Fargo paid Citi USD $100-million and both banks terminated their legal challenges against each other.
  • In December 2010, the U.S. government sold its remaining stake in Citigroup for about USD $10.5-billion. The government had obtained 7.69-billion shares of Citi at a conversion price of USD $3.25 per share. The shares were sold over a period of time at an average price of USD $4.14 per share, producing a gain of about USD $6.85-billion for the U.S. taxpayers.
  • In December 2011, Citigroup sold Citibank Belgium SA to Crédit Mutuel Nord Europe for an undisclosed amount.  Citibank Belgium had 198 points of sale serving 500,000 customers.
  • In May 2012, Citigroup sold a 10.1% stake in Turkey's Akbank TAS to Sabanci Holding for USD $1.15-billion cash (TRY 2.12-billion).  Citi bought a 20% stake in the Turkish bank back in 2006.
  • In February 2013, Citi bought Capital One's Best Buy-branded credit card portfolio at book value of USD $7-billion.
  • In May 2013, Citigrpup sold its Brazilian credit card operations Banco Citicard S.A. and Credicard operations to Itaú Unibanco for BRL 2.77-billion (USD $1.37-billion). Banco Citicard and Credicard had 4.8-million clients and 96 points of sale.
  • In June 2013, Citi reached an agreement to sell its remaining 35% stake in investment bank Morgan Stanley Smith Barney to Morgan Stanley for USD $4.7-billion.  The final sale valued the entire Morgan Stanley Smith Barney at about USD $13.5-billion.
  • In June 2014, Citi sold its Spanish retail banking and credit card operations to Banco Popular Español for Eur 240-million.  The businesses sold included 1.2-million accounts and 45 branches.
  • In October 2014, Citi announced that it was exiting the retail banking operations in Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary, Japan, Nicaragua, Panama and Peru, plus the consumer finance business in South Korea.
  • In March 2015, Citi sold its subprime consumer finance provider OneMain to Springleaf Holdings for USD $4.25-billion in cash.  OneMain provided risky consumer loans to low-income clients through over 1,100 branches in the U.S.  While profitable to Citi, OneMain required higher cost of capital and gave Citi a higher-risk overall profile.
  • In July 2015, Citi sold its retail and commercial banking units in Panama and Costa Rica to Canada's Bank of Nova Scotia (Scotiabank) for an undisclosed amount.  Citi would continue to offer corporate and institutional banking and wealth management services in both countries
  • In February 2016, Citi announced that it would exit the retail banking and credit card operations in Brazil, Argentina and Colombia.
  • Also in February 2016, Citi acquired the Costco-branded credit card portfolio in the U.S. from American Express Co. Terms were not disclosed. Citi and VISA Inc. won the contract to run with Costco Wholesale Corp.'s house-brand credit cards in late 2015, ending American Express's 16-year relationship with the U.S. retailer.
  • Also in February 2016, Citi sold its entire 20% stake in China Guangfa Bank to China Life Insurance for USD $3.0-billion (CNY 19.68-billion, HKD $23.35-billion). Citi had owned a strategic interest in the Chinese bank since 2006.
  • In May 2017, Citi sold its Yield Book analytics and indexing businesses to the London Stock Exchange Group for USD $685-million (GBP 533-million).
  • In January 2018, Citigroup sold its consumer (retail banking and credit cards) and small and medium enterprise operations in Colombia to a subsidiary of Canada's Bank of Nova Scotia for an undisclosed amount. The sale included 47 branches, 424 self-served access points and 500,000 accounts across Colombia.

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