2. CITIGROUP

Citigroup, the largest financial services company in the world, is the
product of the 1998 megamerger of banking behemoth Citicorp and nonbanking financial services and insurance giant Travelers Group Inc.
THE MERGER

Announced on April ,1998
Merged into Citigroup Inc on October 8

Con generic Merger

Combined commercial banking, investment banking, insurance
underwriting and brokerage under one roof for the first time in the US.

Co-CEO„s： John Reed from Citicorp
Sandy Weill from Travelers

Each held half of the equity of Citigroup

Exchange rate of stock：
Citicorp → 1：2.5 ； Travelers → 1： 1
The deal paved the way for the repeal of the Glass-Steagall Act of 1933, the
law that separated investment banks and commercial banks.


3. THE MERGING COMPANIES:
CITICORP AND TRAVELERS
CITICORP

Citibank was the 3rd largest bank in the U.S.

Major global reach with Customer accounts in more than 90
countries.

The largest credit card and charge card issuer and service in the
world
TRAVELERS GROUP

Travelers is one of the largest providers of personal insurance
products in the United States

Major business credit services, consumer finance, brokerage, and
insurance

Revenues
：
Investment
banking(57%),
life
insurance(12%), property insurance(26%), consumer banking(5%)

4. REASONS FOR THE MERGER




To be a customer - centered organization that offered a wide variety of
product lines that could be cross-marketed and cross-sold to its
customers to be a financial one-stop supermarket.
Cross Selling : The merger was largely revenue driven to take
maximum advantage of the two firms‟ strengths in products and
distribution channels dispersed in different geographies.
Economies of scale and scope: In an industry with high fixed costs
such as the financial services, there is a huge potential for scale
economies. In this case too, there were potential cost advantages, since
the cost of maintaining customer relationships could be spread over
more products.
Diversification: Combining the two institutions make them less
dependent on volatile earnings streams. The two Companies in this case
stressed on the reduced risk that comes with greater diversity.
Explore/Dominate new markets: The merger gave them an
opportunity to grow and explore new markets and market segments. For
instance, the deal gave Travelers instant access to Citi‟s 750 offices
outside USA and made it an international financial service provider.

5. MAJOR BUSINESS
Citi is organized into two major segments – Citicorp and Citi Holdings.
Citicorp contains Consumer and Institutional Clients Group core
businesses.
Citi Holdings contains Citi's Brokerage and Asset Management
(includes Smith Barney), Global Consumer Finance, and Citi's
Special Asset Portfolios
1. Global Consumer Business:
 Citi's Global Consumer Business (GCB) is one of the largest retail
banks in the world. Its revenues made up 50% of the total revenue
within Citicorp in 2011.
 Citi's GCB businesses consists of five divisions: Retail Banking
(Citibank), Citi Branded Cards (CitiCards), CitiMortgage, Citi
Commercial Banking and Citi Retail Services (formerly Citi Retail
Partner Cards)
2. Corporate businesses
 It contributes about 40% to the total income, two-third coming from the
Corporate and Investment Bank.
 Divided into five primary businesses: Citi Markets and Citi Transaction
Services(CTS), Citi Private Bank, Citi Capital Advisors, and Citi
Corporate & Investment Banking.

6. IMPACT OF THE MERGER
IMMEDIATE EFFECTS
Shares of Citibank and Travelers Group shot up at the
announcement of the merger, raising the combined value of
the companies by $30 billion.
 Cross selling enabled citigroup to generate profits in some of
its businesses in the initial years. Citicorp with a number of
new mortgage orientations every year was able to bundle
travelers insurance in a package for customers.
 Cross selling alone enabled Citigroup to generate over the
next two years an additional $600 million in earnings.
 Merger retail businesses, private banks and asset management
showed increased revenues. Mainstream investment
banking, saw substantial progress with market share
increasing from about 7% in 1998 to over 10% in 2001.


7. LONG RUN EFFECTS





In the long run, It was seen that an antiquated regulatory structure, with
different financial services regulated by different agencies, made
integration harder.
Maintaining any sort of agility in such a monumental entity was a major
challenge.
Ability
to
respond
to
changing
market
requirements, technology up gradation from time to time posed a
challenge.
This merger often faced structural problems. Culturally it often seemed
disjointed.
Travelers spin off : Citigroup spun off Travelers Property and Casualty
into a subsidiary company in 2002.
Citigroup entered the financial crisis as a huge, highly complex
institution that ended up needing a bigger bailout than any other bank. It
has since struggled to regain its footing, not to mention the favor of
shareholders.

8. QUESTION ANALYSIS
1. Major businesses in which Citigroup operated after the merger were:
Global Consumer group, Citi Markets & banking, Global Wealth
Management, Citi Alternative Investments & other corporate affairs.
Citicorp already had the most extensive international branch network for
any American bank at the time of the merger. This immensely helped
many of the businesses of the newly formed Citigroup.
The businesses in which broad range of products has proved to be helpful
is primarily consumer based business that included credit cards, retail
banking, mortgages and life insurance.
2. Citigroup‟s initial success can be attributed to economies of scale and
scope and cross selling resulting from the merger. Citigroup, the new
name created out of Citicorp and Travelers Group, was, after the
merger, able to service its customers with a wide variety of
products, which was important in a client-focus industry such as the
financial sector.

9. 3.
Economies of scale and scope are important in this sector, but having
said that, a giant with different financial services regulated by different
agencies can be difficult to handle. Apart from that various reasons like
such mergers being unsuccessful in past, vulnerability of oversized
companies
and structural problems faced by firms being
mergered, prevent the firms from following citibank‟s strategy
4. Distribution through various channels has become a key differentiator in
the current environment for the retail banks just to stay ahead of the
competitor. Financial industry requires channel flexibility and support for
an ever widening portfolio of products to meet the consumer expectations.
Thus, focusing on distribution gives a clear advantage.
This can be followed through by continuous innovation, more talented
local teams to support distributors, targeting segments having profit
potential, and improving cross channel distribution.
5. Our suggestion to Sandy Weil would be that citigroup should continue
its expansion but along with the expansion it should fine tune its range of
products and services. The inability of citigroup to do this successfully
had resulted in losses for some of these segments like global
corporate, investment activities and global consumer activities in sectors
like insurance and e-consumer. Fine tuning of services along with
innovation and a strong distribution network would make citigroup

10. INDIAN CASE
Merger of HDFC with Centurion Bank of Punjab

11. • A Mumbai based financial services company incorporated in august
1994 and was
promoted by the Housing Development Finance
Corporation
•The largest bank by market capitalization as of November 1, 2012 and
has 2,776 branches and 10,490 ATMs, in 1,399 cities in India
•Deals with three key business segments. - Wholesale Banking
Services, Retail Banking Services, Treasury
•Entered the banking consortia of over 50 corporate for providing
working capital finance, trade services, corporate finance, and
merchant banking
•Provides a wide range of commercial and transactional banking
services to its corporate customers, mutual funds, stock exchange
members and banks.
•First bank in India to launch an International Debit Card in
association with VISA (Visa Electron)
•Also one of the leading players in the “merchant acquiring” business

12. • Indian private sector bank that provided retail and corporate
banking services
• Incorporated on 30 June 1994 and received its certificate of
Commencement of Business on 20 July
•Was a joint venture between 20th Century Finance
Corporation and its associates and Keppel Group of
Singapore
•On 29 June 2005, the Boards of Directors of Centurion Bank
and Bank of Punjab agreed to a merger of the two banks. The
combined bank took as its name Centurion Bank of Punjab
•Till the merger it operated on a strong nationwide franchise
of 403 branches and had over 5,000 employees

13. .
THE MERGER
•The merger of HDFC Bank with the Centurion Bank of Punjab took place on
23rd May, 2008 which made HDFC Bank the seventh largest bank.
•The name of the bank remained as HDFC Bank
•The acquisition was around 9510 crore and the combined entity had a nationwide network of 1,148 branches
Nature and context of the merger:
(1)It was a horizontal merger with principal objectives :
-Achieve economies of scale
-Widening the line of products
-To get more dominance in the market
(2) The merger was also important to face the competition posed by
foreign banks looking to enter on account of RBI‟s liberal policies and the
domestic competition posed by ICICI Bank
(3)CBoP had traditionally been strong in high yielding in SME and retail
segments while HDFC had an enviable retail deposit franchise.
(4)Both the banks had a strong foothold in vehicle financing which
formed the basis for a natural synergy.

14. The bottlenecks of the merger were:
• Operational
issues like account opening, net
banking, cheque book issue, recurring deposits.
• Technological issues
• HR issues that involved mapping of employees.
•Infrastructural issues-multiplicity of branches, ATMs.
• Risk issues that involved NPA,CASA and cost of
funds.

15. IMPACT OF THE MERGER
The merger strengthened the distribution network of HDFC Bank in
the northern and southern regions and led to an increase in asset base
of around 15-20%. The bank‟s main task was to harmonize the
accounting policies and, as a result, HDFC Bank took a hit of Rs. 7
Billion to streamline the policies of CBoP.
The actual benefits filtered in, in the next 12-24
months, with improved productivity in terms of net revenue and
CASA growth of CBoP branches on par with HDFC outlets.The
CASA ratio at the end of June 2008 was 45% which was in line with
expectations of analysts as CBoP had a much lower CASA ratio of
around 25% compare to 56% of Pre-merged HDFC Bank.
The cost/income ratio of the merged entity had increased to around
56% from 50% levels for standalone HDFC Bank. The integration of
the two banks' technology-based platforms also improved the cost
efficiencies

16. Pre-Merger
Post-Merger
Gross Profit Margin
70.2136
75.2397
Net Profit Margin
18.8413
17.2680
Operating Profit Margin
46.7550
53.4248
Return on Capital
Employed
1.1877
1.3220
80
70
60
Gross Profit Margin
50
Net Profit Margin
40
30
Operating Profit Margin
20
Return on Capital
Employed
10
0
PreMerger
PostMerger

17. HDFC Bank has always maintained that fast branch expansion is a key ingredient
that will sustain its high CASA deposits and margins. This merger with CBoP had
resulted in the largest branch distribution network for a private bank in India.
Retail segment continues to be the main focus for the combined entity and is the
crucial growth driver.
2009
2010
2011
Gross Profit Margin
74.76217
74.66454
76.29250
Net Profit Margin
13.74548
18.23227
19.70267
Operating Profit Margin
54.61426
51.12141
54.53866
Return on Capital Employed
1.22493
1.32550
1.41566
Return on Equity
527.75165
644.18447
843.96749
Debt-Equity Ratio
342.04104
393.93570
479.29082
Gross Profit
Margin
900
800
700
600
500
400
300
200
100
0
Net Profit Margin
Operating Profit
Margin
2009
2010
2011
Return on
Capital
Employed
Return on Equity

18. SUMMARY
Positive aspects of the merger
were:
Negative aspects of the merger
were:
•Increased footprint and metro
presence
•Recorded growth figure:
-Net profit grew by 44.6%
-Net interest income grew by
74.9%
-Advances grew by 79.8% and
deposits by 60.4%
• Enhanced scope that would
enable entry in to International
business
•Both
banks
have
senior
managements of high calibre who
have worked with Citigroup at
some point in their career.
• Merger likely to be EPS dilutive
due to valuations in the near
future
• Integration of Lord Krishna
Bank branches may pose a
challenge.
•High level of write-offs due to
bad asset quality of CBoP in
personal loans and two wheeler
loans.
•Net interest margins and CASA
were impacted adversely.