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With the infusion of 45 billion taxpayer dollars to Citigroup over the past month or so, and the reasonable expectation of handing them perhaps hundreds of billions more, it seemed that a cursory examination of this entity was in order. We are told that Citigroup is “too big to fail”, but a glimpse at their history over the past two decades shows that frequently recurring serial failure is a hallmark of their existence. It is enough to make one wonder if failure is an integral part of their business plan. Perhaps a more realistic appraisal would reveal that Citigroup is too big to properly manage.
Currently, Citigroup has suffered four consecutive quarters of loss with an outlook of continuing losses into 2010. The enterprise’s market valuation of $21 billion stands at a little better than eight and a half percent of what it was two years ago when it was $244 billion. The company has announced its intent to cut 52,000 jobs on top of 23,000 that were cut earlier this year for a 2008 grand total of 75,000 layoffs.
Thankfully, the executive suites have not gone unscathed, with former CEO, Charles Prince, having been replaced in November of 2007 by Sir Win Bischoff. A month later, Bischoff was kicked up to Chairman the Board of Directors, a seat that was, until recently, polished by the expensively tailored ass of no less a luminary than Robert Rubin. The CEO billet was filled by Vikram S. Pandit, who is, no doubt, waiting to see if any dust collects on his desk before his successor is named. It is instructive to note that Pandit was, at one time, the head of Citi Alternative Investments, the hedge fund and derivative marketing arm of this financial octopus. It is these types of investments (term used advisedly) that we will likely see flashing to ashes next.
So that’s what they’ve done for us lately, was there anything building up to it?
Bailouts are not something that is new to the Citi. March of 1991 found what was then only Citicorp on the brink of failure, but after soliciting the sale of $200 million of preferred stock to Saudi Prince Alwaleed bin Talal, who had earlier purchased $200 million in common stock on the open market, their prince made a purchase of $590 million of the preferred stock. The Kingdom Holding Company, owned by Alwaleed bin Talal, remains the second largest stockholder in Citigroup with a 3.6% stake. It was a timely investment, in view of the $885 million loss announced by Citicorp on October 16, 1991, which they blamed on the economy.
It seems that in spite of their $23,033,490.00 in political contributions from 1989- 2006 favoring Republicans by 51% to 49% they have suffered their worst financial distress after eight to twelve years of Republican rule. The above example, coming two months into the Clinton administration, after twelve years of Republican rule and is not likely to have been much influenced by Clinton policies. The next required bailout came nearly seven years into the Bush administration, and although the Clinton signed deregulation must have contributed to the Citi’s problems, George W. Bush’s absence of enforcement for what was left of regulation took its toll.
In November of 2007, with rumblings of the sub-prime mortgage market well into their crescendo, Citigroup found itself to be due for another infusion of cash to stave of the wolves at the door. After shopping around the sovereign wealth funds in Asia, the rescue came courtesy of Abu Dhabi’s sovereign wealth fund which contributed $7.5 billion to the cause. It also made the Abu Dhabi Investment Authority the single largest shareholder in Citigroup with a 4.9% stake.
Here, a year later, the burden of Citigroup’s investment transgressions has not come to be easier to bear, and they have twice extended their well-manicured hands in supplication to the plutocratically sympathetic Henry Paulson. He has tried to assuage their need with $25 billion in taxpayer funds, and then within a month, another $20 billion. That’s right, with their current market valuation; we could have bought them outright, twice.
All of this alms seeking may have been eased by an additional $4.75 billion to play around with, but that amount went to the payment of fines and settlement of lawsuits in this new century.
In March of 2005 there was $21.25 million in fines assessed against Citigroup along with American Express Financial Advisors and Chase Investment Services for their misleading mutual funds sales practices. There was also a $75 million settlement with shareholders of Global Crossing stock and with Global Crossing Securities.
In June of 2007 it cost $15 million for misleading documentation and inadequate disclosure at a series of Bell South employee seminars.
For wading through the financial quagmire that was Enron from 1997 to 2001, they had to pay $2 billion in settlement of the stockholders’ lawsuits.
In 2004, Citigroup settled lawsuits brought by investors in WorldCom with payment of $2.65 billion.
Then, of course, there was the censure they received from the Norwegian authorities for their involvement with a shady Norwegian investment firm called Terra Securities in 2007, when Terra introduced the wonderful world of derivative investment to a number of Norwegian municipalities that were investing with funds leveraged from their power utilities.
In 2004 they dumped $11 billion in bonds on the European bond market to depress their price and then bought them back at the reduced price.
Then there was just this year when they were caught misappropriating positive balances from customer credit card accounts.
Citigroup’s mortgage lending subsidiary was instrumental in marketing the sub-prime mortgage paper that we as taxpayers will likely have to eat. Perhaps they were encouraged to move that way from their other NINJA (no income, job, assets) credit extensions like issuing credit cards to college students whom they knew had no means to pay them back. But they felt secure with the arrangement since they could hold these kids’ credit ratings, and consequently their start in adult life, hostage to their parents’ response to this extortion. More often than not they get paid. (My own daughter was victimized by this scam, and the Citicorp whores ultimately made over $800.00 on around $250.00 worth of charges.)
Yes, the folks at Citigroup, the biggest deadbeats on God’s green earth will tell you that they issue that credit to teach young folks how to be responsible.
So, do you feel comfortable owning a piece of the Citi? What kind of return on investment do you think we’ll get?
The only conclusion I can reach about Citigroup is that it is a too big, improperly managed entity with an absolutely corrupt corporate culture. My recommendation would be to give it the corporate death sentence by withholding any taxpayer funds from enabling their continued offenses.The Congress needs to get some regulation in the pipeline that will prevent the formation of these too big to succeed, too big to properly manage, too big to survive entities and break up or offshore the ones that are extant. Either way, broken up into fallible sized pieces or having their corporate citizenship revoked, we won’t have to worry about them any more.
The lesson that we are re-learning is that there are no economies of scale for failure.
For further reading:
http://en.wikipedia.org/wiki/Citigrouphttp://www.researchrecap.com/index.php?tag=citigroup
http://www.insurancenewsnet.com/article.asp?a=top_news&id=37200
http://consumeraffairs.com/news04/2005citigroup_enron.html
http://www.worldcomlitigation.com
http://www.alacrastore.com/company-snapshot/Citigroup_Inc-1003632
http://www.npr.org/templates/story/story.php?storyId=97090798
http://money.cnn.com/magazines/fortune_archive/1991/03/25/74801/index.htm
http://www.financialsense.com/editorials/guild/2007/1211.html
