Executive Summary
Citigroup was all about big numbers for last two decades: the biggest merger in US history, the world’s one issuer of credit cards, and the world biggest bank. According to Interbrand, Citi has the strongest brand in the financial services and 11th strongest brand in the world. It is number 4 in Financial Times Global 500, number 8 in Fortune 500, the company is also represented in S&P 500, Dow Jones Industrials, and Dow Jones Global Titans. From being the first, to being the biggest: “but will it manage the pace?” ask many business analysts.
Currently, the company has worldwide branch presence that gives it access to major markets. Its full spectre of financial products provides a choice and access to range of customers. It tremendous size allows for economies of scale and provides access to cheap funding as well as possibility to mitigate more risks. Citigroup is also supported by its strong credit ranking and brand name.
On the other hand, a bureaucratic organisation becomes more inflexible creating a lot of slack. Potentially, any of its 300 thousand employees can put the company into legal or financial troubles.
Because of this, plus increasing competition in the US as well as international markets, Citigroup will have difficult time to achieve its short-term targets. Desired return on equity in the range of 18-20% is far away from the current 5-6%. The same holds for mid-to-high single-digit organic revenue growth: there was practically no evidence of such in 2005 except for Private Bank and Alternative Investment businesses.
On the other hand, low efficiency gives a lot of opportunities to improve internal processes and to meet the target of organic income growth to exceed organic revenue growth. This can be relatively easy achieved with the right actions. Current cost saving plan through cost cuts still has to prove itself. Holding numerous businesses, which have little to do to with each other within one organisation, introduce extra slack.
Citigroup should seriously think about how to handle its enormous structure and consider spinning off some of the businesses, starting with less profitable and less attractive in the long run. The company management should scrutinise and question existing and potential synergies, whether hidden or made-up.
Among its strong assets, Citi brand and international presence will play crucial role in the future of the company. The US market leaves little opportunities for organic growth; therefore, the foremost opportunity will come from the international growth, which promises to open the doors to more profitable markets as compared to the home one. In the mature markets, the company should focus more on quality and product innovation; while in the emerging ones, it should put more effort on aggressive marketing to increase its market share.