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 THE 1930S
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
11. US Banking Industry
It illustrates 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
MORTGAGE CRISIS
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.
13.
14. POST-RECESSION
EFFECTS
IMF estimated that large 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
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 of the 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 of dollars
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
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
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
30. CAMELS FOR CITI BANK
• 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 CITI BANK
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 CITI BANK
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 CITI BANK
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 CITI BANK
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 CITI BANK
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.
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.
Source: Booz & Company “Capturing Growth in U.S. Retail Banking”
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