AIBC

Citigroup’s unravelling of mergers legacy

Posted:Nov 27, 2023 14:10 Category: Americas , Fintech , Posted by
Lea Hogg

Few stories are as tumultuous as the merger between Citigroup (Citi) and Travelers.

Initiated in 1998, this union, spearheaded by Sandy Weill and John Reed, aimed to create a financial powerhouse, combining diverse businesses under one roof. However, the ambitious vision faced immediate challenges.

Compliance, risk and Illegality

The complexity of managing numerous businesses contributed to compliance and risk management problems within Citi. Moreover, the merger itself faced legal scrutiny, being deemed illegal by some due to its violation of the Glass-Steagall Act.

Financial struggles and share price decline

Citi’s stock witnessed an alarming 80 percent drop since the merger, with various factors contributing to this decline. Issues such as the subprime mortgage crisis and subsequent toxic assets left Citi battered, requiring significant government intervention to stabilize.

Challenges in governance

A recurring problem for Citi has been the existence of silos, hindering effective oversight.

Scandals, from money laundering to trading errors, erupted across different segments, catching senior management off guard. The lack of cohesive governance structures further intensified Citi’s woes.

Leadership attempts at reinvention

Successive CEOs, including Vikram Pandit (in photo above, on the right), and Michael Corbat, attempted to simplify Citi’s structure. Despite their efforts, challenges persisted.

The current CEO, Jane Fraser, (in photo above, on the left), faces the daunting task of reshaping Citi in an era that demands streamlined operations and a focus on profitability.

Flashbacks of mistakes: Revlon payment and flash crash

Recent blunders, such as the accidental $900 million payment to Revlon creditors, exemplify deeper issues within Citi’s operational framework. A subsequent flash crash in European stocks due to a trading error further underscored the bank’s struggle with internal controls.

Jane Fraser’s bold move with radical reorganization

In a bid to revive Citi’s fortunes, Jane Fraser has announced a sweeping reorganization—the most significant in 15 years. She aims to eliminate operational layers, opting for a structure where six distinct businesses report directly to her. This move signifies a shift toward personal accountability and a departure from the siloed approach of the past.

Lessons in transparency and the path ahead

Citi’s journey serves as a cautionary tale of the pitfalls that accompany grandiose mergers and a lack of cohesive governance. As the banking industry embraces humility and a focus on core competencies, Citi stands at a crossroads, needing to redefine its role in a landscape that demands adaptability, transparency, and sustained profitability.

The question remains: can Citi navigate this evolving terrain and secure its position in the rise of fintechs and digital finance.

 

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