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Us banking system citi finale
Citibank is one of the largest international banks, with retail banking operations in over 160 countries. During the 2008 recession, Citibank lost billions from the subprime mortgage crisis and was forced to cut staff, relocate employees, and seek federal financing to avoid collapse. Currently, Citibank faces threats like eroding customer trust and stagnant revenue growth. However, opportunities exist to retain customers through improved digital offerings and gain market share through strategic acquisitions. Citibank's goals are to regain customer trust, boost top-line revenue, and strengthen risk management practices.
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Us banking system citi finale
- 1. Presented by: Megha Bhalla – 11FN-063 Rohil Mantri – 11FN-059 US BANKING Prince Gupta – 11IB-044 Abhijeet Datta – 11FN-002 SYSTEM Saurabh Bakshi - 11IB-052 Saurabh Bansal - 11IB-053 Sanket Mavlankar – 11FN- 060
- 2. AGENDA History of US Banking and Regulations Market Size of US Banking industry Effects of Recession 2008 Challenges and Outlook of US Banking About City Bank City Bank Performance City Bank Analysis
- 3. EFFECT OF THE1930S BANKING CRISIS Federal Deposit Insurance Corporation (FDIC) is created to insure deposits in banks. This helps to restore confidence in the banking system. Securities and Exchange Commission (SEC) is created to regulate the securities industry. Banking and Securities Operations must be separated. Many banks gambled in the stock market and lost money during the stock market collapse of 1929. Banks are not allowed to operate nor own banks outside of their state jurisdiction.This was to protect against systematic risk. Start of Investment Banking Era
- 4. BANKING REGULATION banks • Commercial that accept deposits required to obtain FDIC insurance and to have a primary federal regulator FDIC(nonmemb er state banks) • Credit unions supervised by the National Credit Regulation State Federal UnionAdministration Reserve(memb ers state • The Federal Financial banks) Institutions Comptroller of Examination Federal Currency(National Banks) Council(FFIEC) establishes uniform principles, standards, addresses privacy, disclosure, fraud prevention, anti- and report forms for money laundering, anti-terrorism, anti-usury lending, and the other agencies. the promotion of lending to lower-income populations.
- 5. REGULATORY BODIES • conduct the nation's monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions • Provides deposit insurance, which guarantees the safety of deposits in member banks, up to $250,000 per depositor per bank • serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States
- 6. BASEL NORMS Basel-I Basel-II Basel-II.5 Basel- III http://www.pwc.lu/en/risk-management/docs/pwc-basel-III-a-risk-management- perspective.pdf
- 7.
- 8. AN OVERVIEW OFBASEL-III
- 9. US Banking Industry •Thetotal size of US Banks with respect to the assets they hold is as shown.
- 10. US BANKING INDUSTRY TOP 10 US BANKS
- 11. US Banking Industry Itillustrates the striking increase in banking industry capitalization in recent years, due to the issuance of new seasoned equity by many firms, as well as in retained earnings. This measure of industry capitalization reached 11.5 percent in 2012:Q2, compared with a low of 6.2 percent in 2008:Q4.
- 12. THE 2008 SUBPRIME MORTGAGECRISIS Led to the collapse of the United States housing bubble. Failure or collapse of many of the United States' largest financial institutions: Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and AIG Contributed to a global financial crisis, even as oil and food prices soared Crisis in the automobile industry The government responded with an unprecedented $700 billion bank bailout and $787 billion fiscal stimulus package.
- 14. POST-RECESSION EFFECTS IMF estimated thatlarge U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans from January 2007 to September 2009. Over 100 mortgage lenders went bankrupt during 2007 and 2008 Concerns that investment bank Bear Stearns would collapse in March 2008 resulted in its fire-sale to JP Morgan Chase. Several major institutions either failed, were acquired under duress, or were subject to government takeover. These included Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, Citigroup, and AIG
- 15. SIGNIFICANT GROWTH CHALLENGES Macroeconomic Consumer Regulatory • Unemployment Behaviour • Heightened consumer • Extended low-interest- • New Debt - Reduced protection laws rate environment willingness • Reducing fees • Slowly stabilizing home • Higher rate of savings • Increasing values • Deterioration in trust transparency leading to erosion of • Increased capital bank loyalty requirements Increased Stagnant More stringent Declining competition top-line risk profitability & High NPAs for revenue management Low ROE creditworthy growth practice customers
- 16. REVENUE AND OPERATING PROFIT GROWTH Source: Booz & Company “Capturing Growth in U.S. Retail Banking” Stagnate in many product segments
- 17. BANKS ARE INCREASINGLY COMPETING ON Segment Distribution Community Product Giants Banks Specialists Innovators • Extensive • Trusted • Targeting • Dense branch brand in the defined branch network community segments / network with • Competitive • Deep local products online, mobil pricing and relationships • Deep e etc. convenience • Traditional industry • Product • Broadest product set expertise innovation range of • Specialized • M&A to products products and expand solutions Wells PNC Fargo BB&T USAA Financial Citi Bank
- 18. CITIBANK • One ofthe major international banks is the consumer banking arm of financial services giant Citigroup • Founded in 1812 as the City Bank of New York, later First National City Bank of New York • Third largest bank holding company in the United States by total assets, after Bank of America and JPMorgan Chase • Has retail banking operations in more than 160 countries and territories around the world • In addition to the standard banking transactions, offers insurance, credit cards and investment products
- 19. CITIBANK- DURING RECESSION •Citi reported losing $8–11 billion from the subprime mortgage crisis in the United States. • On April 11, 2007, the parent Citi announced staff cuts and relocations. • On November 4, 2007, Charles Prince quit as the chairman and chief executive of Citigroup. To be replaced by United States Secretary of the Treasury Robert Rubin. • In August 2008, after a three-year investigation by California's Attorney General Citibank was ordered to repay the $14 million that was removed from 53,000 customers accounts over an 11-year period from 1992 to 2003. The money was taken under a computerized "account sweeping program“. • On November 23, 2008, Citigroup was forced to seek federal financing to avoid a collapse. The U.S. government provided $25 billion and guarantees to risky assets to Citigroup in exchange for stock. • On January 16, 2009, Citigroup splitted into Citicorp and Citi Holdings Inc. • On October 19, 2011, Citigroup agreed to $285 million civil fraud penalty.
- 20. CITI BANK –GOALS & CHALLENGES Threats Opportunities Citi’s Goals Retain customers by Erosion customer delivering exceptional loyalty experiences "We'll beat all our Leverage trust and competitors in provide a full-service productivity Regulations that relationship and client restrict future revenue satisfaction," sources said U.S. retail Expand the value offered to customers and commercial banking chief New technologies vs Cecilia Stewart traditional branch Monetize customer network data through analytics
- 21. FINANCIAL STATEMENT ofdollars In millions Income Statement 2009 2010 2011 Revenue 80285 86601 78353 Operating 47822 47375 50933 Expenses Provision for 40262 26042 12796 credit losses Net Income (1606) 10602 11067
- 22. INCOME STATEMENT 100000 90000 80000 70000 60000 Revenue 50000 Op expenses 40000 Net Income 30000 20000 10000 0 -10000 2009 2010 2011
- 23. INCOME STATEMENT 100000 90000 80000 70000 60000 50000 2009 2010 40000 2011 30000 20000 10000 0 -10000 Revenue Op expenses Net Income
- 24. FINANCIAL STATEMENT In billions of dollars Balance Sheet 2009 2010 2011 Total Assets 1856.6 1913.9 1873.9 Total Deposits 835.9 845 865.9 Equity 152.7 163.5 177.8 Book value per 41.50 44.55 49.74 share
- 25. BALANCE SHEET 2500 2000 1500 Assets Deposit 1000 Equity 500 0 2009 2010 2011
- 26. FINANCIAL RATIOS 2009 2010 2011 Tier 1 common ratio 9.60% 10.75% 11.80% Tier 1 capital ratio 11.67% 12.91% 13.55% Total capital ratio 15.25% 16.59% 16.99% Leverage ratio 6.87% 6.60% 7.19% Return on common (9.4%) 6.8% 6.3% average equity
- 27. RATIO Tier 1 common ratio 14 12 10 8 Tier 1 common ratio 6 Linear (Tier 1 common 4 ratio) 2 0 2009 2010 2011
- 28. REVENUE (SEGMENT- WISE) In millions of dollars 2009 2010 2011 North America 23615 33625 30161 EMEA 15084 11764 12265 Latin America 12711 12751 13552 Asia 14072 14436 15219
- 29. REVENUE (SEGMENT- WISE) 35000 30000 25000 20000 15000 2009 10000 2010 5000 2011 0 North EMEA America Latin Asia America
- 30. CAMELS FOR CITIBANK • The financial soundness indicators for the banking sector can be grouped according to six key areas of potential vulnerability known as CAMELS. • Capital ratio, Asset quality, Management soundness, Earnings and profitability, Liquidity and Sensitivity. A. Capital Ratio 2011 2010 Tier 1 Capital 13.55% 12.91% Ratio Total Capital 16.99% 16.59% Ratio • Tier 1 Capital Ratio has improved to 13.55% from 12.91%, which is a positive sign for the bank • Total Capital Ratio has improved marginally from 16.59% to 16.99%.
- 31. CAMELS FOR CITIBANK Asset Quality 2011 2010 % Change Net NPA’s to 7.175% 7.418% -3.20% Net Advances Gross NPA 7.777% 7.911% -1.72% to Total Gross Loans • The level of NPAs is recognized as a critical indicator for assessing banks' credit risk, asset quality and efficiency in allocation of resources to productive sectors. • Net NPA’s to Net Advances has declined marginally which is a good sign for the bank. Although it still is at a relatively high levels of 7.175%. • Gross NPA’s to Total Gross Loans has reduced marginally from th previous year which is a positive sign for the bank.
- 32. CAMELS FOR CITIBANK Management Efficiency $million 2011 2010 % Change Profit per 42402 39685 6.85% employee Business per 5682233 5439292 4.46% employee • The profit per employee has increased by 6.85%, while the business per employee has increased by 4.46%. • The bank has shown marginal growth in the total advances and total deposits section which clearly underlines the management efficiency. • The number of employees have been reduced slightly, thereby indicating the management’s willingness to cut costs during the times
- 33. CAMELS FOR CITIBANK Earnings and Profitability $million 2011 2010 % Change Non-interest 0.813 0.847 -4.06% expenses to gross income ROA/ROE 0.095 0.086 10.6% • This ratio indicates the extent to which high non-interest expenses weakens earnings. The ratio of 0.813 is pretty high for the bank, although it has declined from the previous value of 0.847. • ROA/ROE assesses scope for earnings to offset losses relative to capital or loan and asset portfolio. A relatively low ratio of 9.5% indicates the strong earnings capability of the bank and also the efficiency with which it performs, although it has increased from the previous year.
- 34. CAMELS FOR CITIBANK Liquidity $million 2011 2010 % Change Liquid assets 0.260 0.244 6.45% to Total assets Liquid assets 1.577 1.463 7.79% to short-term liabilities • These ratios assess the vulnerability of the sector to loss of access to market sources of funding or a run on deposits. It assesses the liquidity available with the bank. The bank has shown a slight increase in these ratios over the previous year, which is a positive indication for the bank.
- 35. CAMELS FOR CITIBANK Sensitivity $million 2011 2010 % Change Interest Rate 187433 208911 10.2% Hedges Foreign 53796 56245 -4.3% Exchange Hedges • It indicates the sensitivity of the bank to interest rate and foreign exchange risk. • The bank has hedged its risk, which indicates the willingness of the bank to address sensitivity.
- 36. References: •http://www.pwc.lu/en/risk-management/docs/pwc-basel-III-a-risk- management-perspective.pdf •http://www.federalreserve.gov/newsevents/press/bcreg/20060224aa.htm •Booz & Company“Capturing Growth in U.S. Retail Banking” •http://online.wsj.com/article/BT-CO-20120207-714503.html •www.citibank.co.in/ •en.wikipedia.org/wiki/Citibank
Editor's Notes
- #4 Shadow banks2are financial institutions that developed mainly after World War II in the UnitedStates.3 Those institutions behave as if they are banks issuing liabilities that areperceived by investors to be as safe and liquid as traditional demand deposits, andthey are less regulated than depository institutions.
- #16 Source: Booz & Company “Capturing Growth in U.S. Retail Banking”
- #18 Source : http://online.wsj.com/article/BT-CO-20120207-714503.html
- #21 Experience Radar can help you:• Develop products and services that matter to customers• Figure out whom to target and how to market experience-basedofferings• Set yourself apart in an increasingly competitive environment• Connect the dots between customer value and sustainablefi nancial performance• Attain top-of-wallet status with your customers