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In one of the largest mergers in banking history, Citicorp and Travelers Group merged together in 1998.
They created Citigroup, valued at $140 billion!
Heralded as revolutionizing one-stop shopping for banking, brokerage, and insurance services, the blockbuster Citigroup deal created a behemoth with 100 million customers worldwide and represented an emphatic vote of confidence in the principle allowing affiliations between commercial and investment banks.
Yet while initially praised for its vision of cross-selling financial services, Citigroup would come under fire when the idea failed to materialize as promised and its exposure across risky areas made it exceptionally vulnerable in the 2008 financial meltdown.
The 1998 megamerger ushered in the era of super big banks.
Citigroup expanded its lending arm in 2000 with the $31.1 billion purchase of Associates First Capital Corporation.
The takeover helped Citi take the lead in being the provider of mortgages, credit cards, personal loans and insurance.
The deal brought them 15 million U.S. households to upsell into.
The only bad news was that Citigroup had to deal with regulatory penalties and customer refunds because of Associates' shoddy lending practices.
But the acquisition did help grow Citigroup's U.S. retail presence across 2,500 locations.
In rapid succession in 2001, Citigroup significantly expanded its banking presence with two outsized acquisitions—the $1.9 billion purchase of New York-based European American Bank and the $12.5 billion deal for Mexico's second largest bank, Grupo Financiero Banamex-Accival.
Buying European American Bank instantly tripled Citigroup's retail branches across Long Island and New York City's suburbs while boosting assets by over $10 billion.
But the even bolder Banamex takeover stood as the second largest U.S. bank foreign investment ever, handing Citigroup a prominent Mexican retail, commercial and investment banking franchise with access to a huge emerging market across 1,400 branches and over 20 million clients.
The monumental twin purchases in 2001 typified Citigroup CEO Sandy Weill’s “buy it, strip it, fix it” philosophy while exhibiting his penchant for headline-grabbing mega-deals in transforming the bank into a global financial colossus.
After divesting its sprawling property-casualty insurance assets into a separate public company in 2002, Citigroup took its Travelers insurance wing full circle by orchestrating its $16 billion merger with storied St. Paul Companies in 2004 to conceive The St. Paul Travelers Companies.
This gigantic union created the second-largest commercial insurer in America, behemoth wielding a $20 billion market value, over 30,000 employees and a web of offices stretching across all 50 states.
While allowing Citigroup to concentrate more wholly on banking and investments, the reborn St. Paul Travelers insurance titan also afforded it a new source of steady earnings via an initial 24 percent stake while still profiting from ongoing brand association with its iconic red umbrella logo.
Ultimately though, Citigroup would relinquish all insurance ties by divesting this latest interest five years later.
After orchestrating the merger creating insurance giant St. Paul Travelers, Citigroup wasted no time capitalizing on cross-selling opportunities from its new venture by acquiring the firm's asset management arm in 2005 for $500 million.
This purchased Citigroup an additional $179 billion under management across stocks, bonds and alternative investments—augmenting its wealth advisory firepower beyond the Smith Barney brokerage.
Although seemingly minor beside its history of blockbuster bank takeovers, the St. Paul Travelers asset purchase still expanded Citigroup’s investment advisory wingspan while furthering its strategic vision to furnish all financial products and counseling under one roof.
Yet it also constituted one more entanglement that would mire the bank in legal and regulatory woes once the house of cards collapsed three years later—ultimately necessitating a return to banking basics after the crisis.
In its largest grab for an investment bank, Citigroup spent $9 billion to acquire storied bond trading giant Salomon Brothers in 1997, one of Wall Street’s preeminent firms bearing a reputation for innovation and risk-taking.
The purchase wedded Salomon’s prowess in fixed income markets with Citibank’s strong equity and retail operations under the Salomon Smith Barney banner.
Although panned by critics as an awkward cultural fit given Salomon’s swashbuckling posture, the blockbuster deal bolstered Citigroup’s position as a financial services department store—broadening capabilities from proprietary trading to mergers advice for clients seeking one-stop solutions.
But conflicts of interest stemming from affiliated research, investment banking and retail advice subsequently mired Citigroup in a parade of scandals—necessitating the dismantling of complex cross linkages built in a drive to become the Walmart of banking.
Badly scorched from the 2008 subprime inferno, Citigroup was compelled to dismantle pieces of its sprawling financial empire, starting with its prized Smith Barney brokerage unit—a crown jewel boasting over $1.5 trillion in client assets.
After absorbing staggering losses across mortgage-backed securities and collateralized debt obligations, Citigroup merged Smith Barney in 2009 with Morgan Stanley’s wealth management arm, while retaining 49 percent interest in the joint venture.
Although Citi relinquished majority control over one of its most coveted franchises, desperate times called for desperate measures—raising nearly $10 billion in capital and entrusting its bruised brokerage jewel to a relatively stable Morgan Stanley as one stabilizing tourniquet.
The fire-sale would foreshadow a coming decade of Citigroup disentangling community banking and overseas consumer lending amidst a humbling retreat to financial basics.
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