Citi's long run of stumbles, successes, near-death

NEW YORK -- The bank Michael Corbat will take over made its first mark helping the U.S. government repay its debts after the War of 1812. Two centuries later, when the 2008 financial crisis struck, the bank needed a federal rescue from its own debts.

In between its founding and its near-death, the company now called Citigroup has played a central role in U.S. financial history.

It helped finance the Civil War, railroads and the Panama Canal.

It was among the first banks to expand aggressively overseas, and, when allowed, to open retail branches nationwide.

It changed how we bank: It installed the first, rudimentary automated teller machine in 1939. And it introduced "The Everything Card," the first general credit card, in 1967.

On Tuesday, Corbat was named Citi's new CEO after the abrupt departure of Vikram Pandit, who had led the company through the financial crisis and its aftermath. Corbat has witnessed much of Citi's recent turbulent history: He has been with the bank since 1983.

The Citi he'll lead is no longer fighting for survival. It announced strong financial results just a day before Pandit stepped down. And it remains the third-largest U.S. bank as measured by assets, behind JPMorgan Chase and Bank of America.

Its assets total $1.9 trillion.

But it has yet to regain the stature or status it once enjoyed as the largest and most prominent U.S. bank, one that expanded into a global financial services conglomerate.

"Now is the worst period in its history by far," says John Steele Gordon, a business and economic historian.

Citigroup was formed in 1812 as the City Bank of New York, a vehicle to help New York City businesses compete with those in Philadelphia and Boston. After the bank supported the U.S. war effort by subscribing to war bonds and lending the federal government $200,000 to help it meet debt payments, it became a government depository. And it began to grow.

In the process, though, it stumbled many times. The first was when it nearly failed in the Panic of 1837 before being rescued by the magnate John Jacob Astor.

Astor installed Moses Taylor as director. Taylor invested in mines and railroads, solidified and expanded the bank and became one of the richest men of the 19th century. He lent the Union money to fight the Civil War and turned the company into a national bank in 1965.

Taylor's successor, James Stillman, expanded overseas and pushed the company into investment banking. This accelerated its growth: Under Stillman, the bank was the first in the United States to amass $1 billion in assets.

But its aggressive expansion also threatened the company in later years _ when foreign loans soured and when the securities business collapsed in the stock market crash of 1929.

By then, the company was led by Charles Mitchell. Nicknamed "Sunshine Charlie," Mitchell helped fuel a dramatic increase in the sale of financial securities, including bank shares that would sink in the 1929 crash.

In congressional hearings afterward, U.S. Senator Carter Glass assigned most of the blame to Mitchell: "Mitchell, more than any 50 men, is responsible for this stock crash," Glass asserted, according to an account in Time magazine.

Legislation that was passed after the crash, called the Glass-Steagall Act, barred commercial banks from a range of investment banking and securities services. Decades later, Citi's merger with the financial services company Travelers Group helped speed the repeal of Glass-Steagall in 1999.

Through the 1930s and '40s, Citi _ by then called National City Bank _ survived as a typical bank with mostly domestic assets. It grew with occasional acquisitions. After World War II, though, the company returned to faster growth under James Stillman Rockefeller, George Moore and Walter Wriston.

Wriston was credited with many of the company's most far-reaching innovations and changes. He expanded the bank's overseas operations, issued the first credit cards, invented financial products such as negotiable certificates of deposit and introduced ATMs.

The first version of an ATM, called a Bankograph, was installed in 1939. It was removed after a few months because consumers disliked it. It accepted deposits. But it didn't dispense cash.

Not until the 1960s and '70s, when the machines were connected to financial networks _ and could distribute cash _ did they begin to catch on.

Beyond his substantive moves _ he helped save New York City from bankruptcy in the 1970s _ Wriston brought stylistic changes. He banished the "y" from the company's names: He renamed the bank Citibank and the corporation Citicorp.

"Walter Wriston was the archetype of the modern American banker in the 1970s and 1980s," Gordon says.

At the same time, Wriston's vast ambition was its own weakness. The company became so big and burrowed into so many separate businesses that it became hard to manage. Its size and breadth would grow further in the years leading to its near-death in the 2008 crisis.

"It was a big, shaggy, powerful and complex animal that was roaming over the landscape," says David Beim, who was an executive at Banker's Trust at the time and now teaches at Columbia Business School. "It wanted to dominate everything."

The giant portfolio of loans in Latin America that Wriston left went bad and threatened the bank's solvency in the late 1980s.

The company was steered through that crisis by John Reed, Wriston's successor. Reed, a retail banking visionary, had turned the company's branches and credit card operations into perhaps the best in the country. He did so, in part, through the aggressive rollout of ATMs that began under Wriston. The strength of the retail banking operations gave the company the stability to survive its Latin American losses.

But Reed had his own ambitions. In 1998, he agreed to merge the company with Travelers Group, a conglomerate run by Sanford Weill. Travelers included an insurance company, the investment bank Salomon Brothers and the stock brokerage Smith Barney.

A key factor behind the decision to merge was anticipation that the Glass-Stegall act would soon be repealed. A year later, it was.

At first, Reed and Weill served as co-CEOs and co-chairmen. The arrangement didn't last. Reed was ousted in 2000.

Charles Prince replaced Weill as CEO in 2003. Weill remained as chairman. And the company basked in its status as the world's biggest and most ambitious bank.

Four years later, Prince was deposed as losses from mortgage-related securities mounted. It was the start of Citi's darkest period.

When Pandit took over in 2007, he tried to keep the bank afloat as its health quickly deteriorated. In the fall of 2008, the company had to be rescued with $45 billion in taxpayer aid. The government later converted $25 billion of the aid into an ownership stake.

The capital infusion stabilized the bank. And Pandit was credited with slimming the bank down, fixing its balance sheet and quickly repaying the government.

In late 2010, the Treasury Department sold the last of its stake in Citigroup. The government said it made $12 billion on the sale.

Now, it's Corbat's turn. In a letter to employees Tuesday, he said he would take time to evaluate the business.

And, he said, there would be changes.


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