Financial Analysis of a Publicly-Traded Citigroup Corporation - Research Paper Example

? Financial Analysis of a Publicly-traded Company- Citigroup Corporation Q1. Identify the company’s mission, vision, and primary stakeholders. Citigroup's Mission Statement is elaborated in four heads as per the following. “Common Purpose: one team, with one goal: serving our clients and stakeholders” “Responsible Finance: conduct that is transparent, prudent and dependable” “Ingenuity: Enhancing our clients’ lives through innovation that harnesses the breadth and depth of our information, global network and world-class products” “Leadership: Talented people with the best training who thrive in a diverse meritocracy that demands excellence, initiative and courage” (Annual Report, 2011 p.1) Vision It is the "vision of transforming Citi into the world's digital bank" as described by Vikram Pandit, the CEO of the company (Annual Report, 2011, p.12). Major Stakeholders Citi's major stakeholders are institutions and mutual funds that own 63% of the company’s holding and their numbers account for 1004 (Yahoo, 2012). However, after conversion of preferred stock held by the US government into a common stock, US government is the largest stakeholder of the company to the tune of over $25 billion (Stempel, 2009). Q.2 Identify the five (5) forces of competition and how it impacts the company. Porter's five forces of competition describe Citigroup’s relative standing in the financial market and the impact these forces may crate on the company can be elaborated under the following heads (Porter, 2008). Threat of Entry from Other organizations Banking business requires huge resources and credibility to begin with and that will surely create an entry barrier for a new entrant. The economies of scale go in favor of the Citi as that helps Citi to provide the services to the consumers at affordable cost. There is always a moderate threat from overseas players to enter in the niche area of Citi. Supplier Power Citi is in the business of financial services. Deposit holders provide huge chunk of capital to the Citi. In most of the cases, they do not have any bargaining power as they are in millions scattered all around and individually too small to dictate any terms. Currently, money flows globally and forward and backward integration of the companies in financial service business can create some turbulent times to the Citigroup but that applies to all firms within the financial market. Buyer Power Being in the financial services business, retail buyers do not have any bargaining power as such and they need to buy as per the market offerings. It is true that business moves in favor of the market-driven company but buyers bargaining power in the financial sector is not substantial to tilt the scale against the companies in this sector. Institutional buyers are the informed buyers and they do possess bargaining power to a certain extent because they buy in bulk; however, that bargaining power is not always one-sided. Financial products are inherently complex in nature and buyers have limited capacity to understand them though they do get substitutes in the market. This factor is not likely to affect much to the company like Citigroup. Rivalry Factor There are numerous competitors in the financial services business in retail and the institutional sectors; however, brand equity is superb in case of Citi. Mergers and acquisition is a common phenomenon in the financial sector. Size of the corporation does matter and Citigroup is one of the giant in the financial sector business so that is always a plus point for the company. Usually, companies change the hands but do no prefer to exit completely as sector offers lucrative business opportunities in the long run. Product differentiation is always possible to carve a suitable niche for the company and Citi has been doing the same for several decades. Substitution Threats Due to numerous players in the financial service sector business, substitute products are always available and the consumers weigh them with all pros and cons. Citi also faces the issue of substitute products in most of the niche area and that is why it has to keep updating products and services so as to have a competitive advantage most of the time over rivals. Citigroup believes in innovation and keeps refining its products and services successfully so as to remain ahead of competition. Q3. Create a SWOT analysis for the company identifying the major strengths, weakness, opportunities, and threats. Strengths of the company can be described as per the following. Competitive Advantage Being one of the largest financial services companies it has a competitive advantage over rivals and can tap the opportunities across major markets including emerging economies of the world. Innovative Products and Services Global consumer banking business demands innovative products and services and Citibank is poised to fulfill the niche. The company launched mobile banking platform in the US and ready to implement it worldwide. Similarly, the company is ready to become the world's digital bank. That will bring the best digital experiences to its customers across the globe. The company recently opened innovation labs in Singapore, Dublin, and Lodz that will create the next generation consumer banking products (Annual Report, 2011p.13, 16). Huge Infrastructure Citigroup's core strength lies in facilitating international trade and helping companies build the businesses in the US. It has presence in world's top 150 cities of the world and operates in the high-growth emerging economies. In a consumer financial service business, the company has a good reach in consumer finance, retail banking and credit card business. Citigroup's strength lies in the retail business with more than 200 million customer account in more than 160 leading cities of the world. On the infrastructure front, Citigroup can boast of largest number of service outlets in terms of ATMs, which currently numbers at 26,000 worldwide (Annual Report, 2011) Global Brand Citigroup is undoubtedly one of the largest global brands with high visibility across most of the markets and that is a big strength of the company. Weaknesses Exposure to Subprime Loans The incident of the subprime financial crisis has been a big setback to the company. The company's huge resources are stuck in the complicated financial products that the company is unable to dispose off. Weak Mortgage Market Continued weakness in the US mortgage market may impede the growth of the company. Reduced Rating The credit rating of the company from Moody's and Standard & Poor has declined over the years after financial meltdown and exposure to subprime crisis. That certainly affects new businesses. Opportunities Exposure to Emerging Economies The company is well placed to take advantage of business opportunities in emerging economies that can be seen from the loan portfolios that advanced by 34% in the year 2011 over previous year (Annual Report, 2011 p.8) Mobile Banking Mobile banking business is likely to take major foray in coming years and the company can harness major chunk of mobile banking business due to its state-of-the-art technology and superior infrastructure in place. Threats Foreign Exchange Fluctuations Due to Citigroup's extensive global operations, foreign exchange fluctuations can impact its results and revenues earned in foreign currencies. Large Scale Consolidation in the Banking Industry This is likely to increase the competition in the retail and wholesale banking in US market. European Sovereign Debt Crisis Since crisis is still not over, this will continue to impact global markets and will affect the operations of the company as well (Annual Report, 2011 p.6). Q4. Based on the SWOT analysis, recommend how the company may capitalize on its strengths and opportunities, and minimize its weaknesses and threats. Citigroup's strengths lie in being a global banker with huge network of branches. Citigroup needs to harness this strength to its advantage by concentrating on the high net-worth clients in BRIC economies (Brazil, Russia, India, and China). BRIC economies are growing at the rate of over 6-7 percent and they are little affected with subprime crisis followed by financial meltdown. Citigroup is well placed to exploit the mobile banking business in these countries through its superior technology and seamless banking products. The world is moving toward digitalization and Citi's competitive edge and lead in this field can give the company a big boost. In this perspective, the loss in US business can better be offset by concentrating on emerging economies. Q.5 Discuss the various levels and types of strategies the firm may use to maximize its competitiveness and profitability. Global Transaction Services (GTS) accounts for more than $3 trillion in capital flows daily. Most of the fortune 500 companies make use of GTS to support their operations that include collections, payments, and investments. GTS is a major contributor in Citigroup's kitty. Citigroup has rightly invested in Citi innovation that will spearhead the development of new applications. GTS aims at delivering digital solutions to the clients in this information-driven environment. Even in a difficult market conditions, GTS continues to exhibit positive momentum with increase in revenues by 5 percent over 2010 (Annual Report, 2011 p.6). Citigroup needs to focus on the key elements that drive global growth in financial services. They are: growth in emerging markets, world trade flows in business and capital, value-added services such as cash management. Client-driven service model should be the key for future growth. Taking advantage of global brand, the company should expand its presence in newer markets tapping high net worth individuals. Developing Citi as the most innovative and client-centric company will provide the competitive edge over rivals. Q. 6 Determine the recent corporate governance issues that are currently affecting the company's decisions and report how the company is or should be handling the issues. Citigroup had some governing issues recently when the company awarded more than $37 million in stock salary to six top executives. The governance issue has significance as the company was rescued by the federal offering to the tune of $45 billion in the aftermath of subprime crisis. Griffin (2010) informs that the top six officials of the Citigroup were awarded shares between $4.17 million and $9 million in stock salary. Moreover, they were eligible to sell them in monthly installments immediately from January 2011 onwards. It is worth noting that the company reported the loss of $27.7 billion in the year 2008 due to financial meltdown. The federal bailout was subjected to pay curbs that put ceiling on bonuses. During the period common shared declined by 90 percent though the company CEO Vikram Pandit had declined to have any stock salary and restricted his compensation to $1 per year. Pandit’s act is certainly exemplary but offering of stock salary to other officials does not go well in the market especially, when outside shareholders have seen their most of the worth in the company stocks vanishing in last few years (Dee, 2010). There is no doubt that Citigroup’s market capitalization has taken a biggest beating post subprime crisis. The long term shareholders are the biggest sufferers. Though the company is on path of recovery yet it has to pass through a turbulent time before it reaches to its past glory. It would have been better if the top company officials had voluntarily taken respite from such stock salary offerings and that would have set Citigroup and their officials as an embodiment of good governance. References Annual Report (2011), 200 Years Citi, retrieved June 7, 2012 from http://www.citigroup.com/citi/ Dee, P. (2010), Corporate Governance Problems Resurface at Citigroup, retrieved June 7, 2012 from http://seekingalpha.com/instablog/234616-pee-dee/96042-corporate-governance-problems resurface-at-citigroup Griffin, D. (2010), Citigroup Increases Stock Compensation for Senior Executives, retrieved June 7, 2012 from http://www.bloomberg.com/news/2010-09-24/citigroup-boosts-executive-stock-awards-will-increase-pandit-s-pay-of-1.html Porter, M. (2008), Harvard Business Review, The Five Competitive Forces That Shape Strategy, retrieved June 7, 2012 from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Stempel, J. (2009). Reuters, U.S. becomes Citigroup's biggest shareholder, retrieved June 7, 2012 from http://www.reuters.com/article/2009/07/30/us-citigroup-stake idUSTRE56S3J120090730http://www.reuters.com/article/2009/07/30/us-citigroup-stake-idUSTRE56S3J120090730 Yahoo, (2012), Yahoo.com, Citigroup, Inc. (C), Major Holders, retrieved June 7, 2012 from, http://finance.yahoo.com/q/mh?s=C+Major+Holders Read More