Stillman, the son of the previous Stillman, became president. Charles E. Mitchell, Stillman's successor in , completed much of what Vanderlip had begun, creating the nation's first full-service bank. Until this time national banks catered almost exclusively to the needs of corporations and institutions, while savings banks handled the needs of individuals. But competition from other banks, and even corporate clients themselves, forced commercial banks to look elsewhere for sources of growth.
Sensing an untapped wealth of business in personal banking, in NCB became the first major bank to offer interest on savings accounts, which it allowed individual customers to open with as little as a dollar. In Citibank began to offer personal consumer loans. By the end of the decade, the "Citibank" was the largest bank in the country, and through its affiliates, the National City Company and the City Bank Farmers' Trust Company, it was also one of the largest securities and trust firms.
In October the stock market crash that led to the Great Depression caused an immediate liquidity crisis in the banking industry. In the ensuing months, thousands of banks were forced to close. NCB remained in business, however, mainly by virtue of its size and organization. But in , at the height of the Depression, Congress passed the Glass-Steagall Act, which restricted the activities of banks by requiring the separation of investment and commercial banking.
NCB was compelled to liquidate its securities affiliate and curtail its line of special financial products, eliminating many of the gains the bank had made in establishing itself as a flexible and competitive full-service bank. James H. Perkins, who succeeded Mitchell as chairman in , had the difficult task of rebuilding the bank's reputation and its business it had fallen to number three.
He instituted a defensive strategy, pledging to keep all domestic and foreign branches open and to eliminate as few staff members as possible. Perkins died in , but his defensive policies were continued by his successor, Gordon Rentschler.
As a major U. The bank followed its defensive strategy throughout the war, amassed a large government bond portfolio, and continued to stress its relationship with corporate clients. Unlike its competitors, NCB was so well placed in so many markets by the end of the war that it could devote its energy to winning new clients rather than entering new markets.
The bank changed direction after the death of Gordon Rentschler in by moving more aggressively into corporate lending. Citibank used its bond portfolio to finance its expansion in corporate lending, selling off bonds to make new loans.
By , however, the bank had just about depleted its bond reserve. Prevented by New Deal legislation from expanding its business in private savings beyond New York City, Citibank had nowhere to turn for more funding. The squeeze on funds only became more acute until , when the bank introduced a new and ingenious product: the negotiable certificate of deposit.
The "CD," as it was called, gave large depositors higher returns on their savings in exchange for restricted liquidity, and was intended to win business from higher-interest government bonds and commercial paper. The CD changed not only Citibank but the entire banking industry, which soon followed suit in offering CDs. The CD gave Citibank a way to expand its assets--but at the same time required it to streamline operations and manage risk more efficiently, because it had to pay a higher rate of interest to CD holders for the use of their funds.
Wriston, a highly unconventional vice-president. Wriston, a product of Wesleyan University and the Fletcher School, had worked his way up through the company's ranks since joining the bank in Having made a name for himself with the CD, Wriston was later given responsibility for revamping the company's management structure to eliminate the strains of Citibank's expansion.
Like Vanderlip more than 50 years before, Wriston advocated a general decentralization of power to permit top executives to concentrate on longer-term strategic considerations. In the bank's official name was changed to First National City Bank. Six years later, in an attempt to circumvent federal regulations restricting a bank's activities, Citibank created a one-bank holding company a type of company the Bank Holding Company Act of had overlooked to own the bank but also engage in lines of business the bank could not.
FNCC made no secret of its intention to expand, both operationally and geographically. In Congress--recognizing its error and concerned that one-bank holding companies would become too powerful--revised the Bank Holding Company Act of to prevent these companies from diversifying into traditionally "non-banking" activities.
Wriston, who was promoted to president in and to chairman in , continued to press for the relaxation of banking laws. He oversaw Citibank's entry into the credit card business, and later directed a massive offer of Visa and MasterCharge cards to 26 million people across the nation. This move greatly upset other banks that also issued the cards, but succeeded in bringing Citibank millions of customers from outside New York state.
The bank failed, however, to properly assess the risk involved. In an effort to gain wider consumer recognition, the holding company formally adopted Citicorp as its legal name in , and in First National City Bank officially changed its name to Citibank, N. The "Citi" prefix was later added to a number of generic product names: Citicorp offered CitiCards, CitiOne unified statement accounts, and there were CitiTeller automatic teller machines and a host of other Citi-offerings.
Citicorp performed very well during the early s, weathering the failure of the Penn Central railroad, the energy crisis, and a recession without serious setback. In , however, the company's fortunes fell dramatically. Profits were erratic because of rapidly eroding economic conditions in Third World countries. Citicorp, awash in petrodollars in the s, had lent heavily to these countries in the belief that they would experience high turnover and faced the possibility of heavy defaults resulting from poor growth rates.
In addition, its Argentine deposits were nationalized in , its interests in Nigeria had to be scaled back in , and political agitation in Poland and Iran in precipitated unfavorable debt rescheduling in those countries. Shareholders soon became concerned that Citicorp, which conducted two-thirds of its business abroad, might face serious losses.
In its domestic operations, Citicorp suffered from a decision made during the early s to expand in low-yielding, consumer-banking activities. Although New York usury laws placed a 12 percent ceiling on consumer loans, Citibank bet that interest rates would drop, leaving plenty of room to make a profit. Again, the opposite happened. Installed throughout its branches by , the ATMs permitted depositors to withdraw money at any hour from hundreds of locations.
Not only were labor costs reduced drastically, but by being first again, Citibank gained thousands of new customers attracted by the convenience of ATMs. Citicorp raised the profitability of its commercial banking operations by deemphasizing interest rate-based income in favor of income from fees for services.
Successful debt negotiations with developing countries cut losses on debts that would otherwise have gone into default. In addition, as a result of the Edge Act and special accommodations made by various states, Citicorp, until then an international giant known domestically only in New York state, was able to expand into several states during the s.
Beginning with mortgages and its credit card business, then savings and loans, and then banks, Citicorp established a presence in 39 states and the District of Columbia. Internationally, the company expanded its business into more than 90 countries. Some of this expansion was accomplished by purchasing existing banks outright.
Wriston, after 14 years as chairman of Citicorp, retired in , shortly after the announcement that Citicorp would enter two new businesses: insurance and information. He was succeeded by John S. Reed, who had distinguished himself by returning the "individual" banking division to profitability.
Citibank's move forced its competitors to follow suit, something few of them were able to do as easily--Bank of America, for example, wound up selling assets to cover its reserve fund.
As Citicorp entered the s, the United States' biggest bank faced perhaps its most challenging period since its founding. A faltering economy, coupled with unprofitable business loans--particularly in the commercial real estate market--led to serious financial difficulties that threatened the bank's existence. Citicorp's ratio of core capital to total assets stood at 3. The company was operating on an expenses-to-revenue ratio of 70 percent, which prompted immediate cost-cutting efforts in nearly all expendable noncore business operations.
For the first time since , shareholders did not receive their 25 cents a share quarterly dividend. Citicorp was in desperate need of reorganization. Chairman John Reed described this period of great instability as "tough, demanding," and a time of "turnaround. Critics blamed Citicorp's loan crisis on Reed's efforts during the mids to expand in the international market and overextend credit to real estate developers, including Donald Trump.
Reed silenced his critics, however, with the successful implementation of a two-year, five-point plan aimed at improving capital strength and operating earnings to offset future, but imminent, credit costs. Of primary importance in the recovery process were cost-cutting measures, growth constraint, and disciplined expenses and credit quality--considered the control aspects of the banking industry.
Staff cuts for the two-year restructuring period resulted in the layoff of more than 15, employees--including many in senior management positions.
Expenses also were trimmed as Citicorp consolidated its U. Such selective investing produced growth in earnings of up to 30 percent. Citicorp continued its commitment to international core business, capital growth, and credit stability as it cautiously proceeded through a recovery period. Circumstances called for conservative action in the early s to compensate for severe losses.
In addition, Citicorp's freedom to make loans was abridged in when it was placed under regulatory supervision by the Federal Reserve Bank of New York. Citicorp experienced losses in the value of its real estate holdings in the early s. The company decided to hold on to the nonperforming property in the hopes an economic recovery would boost its value. However, Citicorp sold approximately 60 percent of its holdings in at a loss.
Two years later the other 40 percent had recovered its value. In a Citibank employee was accused of helping Raul Salinas, brother of Mexican President Carlos Salinas, sneak out of Mexico funds acquired by illegal means. Further embarrassment from Mexico ensued for Citicorp when its purchase of Banco Confia was linked to charges of laundering drug money. Domestically, Citicorp was faced with rising credit card write-offs as consumer bankruptcy increased in the late s. In Citicorp took the lead in mega-banking mergers by joining forces with Travelers Group Inc.
Citigroup Inc. The merger created the largest financial services firm in the world, what the Economist called "a global financial supermarket. John Reed, chairman of Citicorp, and Sanford Weill, chairman of Travelers Group, agreed to run the new company together. Despite the Glass-Steagall Act of , which forbade banks from owning insurers and insurers from owning banks, the merger was approved by the Federal Reserve Board.
It also began to build important connections in Latin America, opening the first-ever foreign branch of an American bank in Buenos Aires. In , the bank caused a scandal when it allegedly gained a sweetheart deal with the Secretary of the Treasury thanks to its connections with Joh D. Source: Columbia Journalism Review. Mitchell was later accused, though acquitted, of tax evasion.
Source: Time. Six years later, it completed its story world headquarters on Park Avenue, where it still stands. He views it as a technique the bank used to avoid interest rate limits, weakening the bank regulatory structure put in place by Roosevelt. He'd become president of American Express in the early 80s. Jamie Dimon is said to have been his protege. Source: Achievement. Travelers, Aetna and Shearson followed. Salomon Smith Barney remained a wholly owned subsidiary.
Source: BillMoyers. The law was officially repealed a year after the merger. Not coincidentally, former U.
Treasury Secretary Robert E. Rubin had joined Citi as an adviser in Source: USA Today. And receives the first of three government bailouts. For you. World globe An icon of the world globe, indicating different international options. Get the Insider App. Click here to learn more. A leading-edge research firm focused on digital transformation. Good Subscriber Account active since Shortcuts. Account icon An icon in the shape of a person's head and shoulders.
It often indicates a user profile. Log out. US Markets Loading H M S In the news. Rob Wile. Citibank was born from anger. The bank's first big splash came from financing armaments during the War of Moses Taylor was the bank's most important president of the 19th century. As with many titans of the age, Taylor did some good and bad. In , James Stillman is elected president of the bank and helps lead America onto the world stage.
Yet it was seen by some as an lb.
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