Thursday, March 12, 2009

Not Down For the Count: Citigroup’s Round Two

Think about last year, 2008. What comes to mind? For many Americans graduations, vacations, and anniversaries are the first things that pop into their head. However, quickly following these happy thoughts are ones focusing on the declining stock market, job loss, and the economy. I think I’m the only one who thinks it was the year of the rat, which I’m sure no one else but Chinese food lovers know, thanks to the free Christmas calendar. Last year also marked a key time in America’s history—the government didn’t let big businesses fail. Multiple American-based corporations received bailouts to try to keep jobs within the company. One of the recipients was Citigroup and they didn’t just receive one, but two bailouts in 2008 totaling roughly $45 billion.

Not all of the companies that received a bailout have turned a profit since the check came in. However, Citigroup did make a profit for the first time in five quarters. At the end of 2008, Citigroup declared that they had lost $8.29 billion in just the fourth quarter of the year. The government gave them a second chance. The first time around, Citigroup received $25 billion from the Troubled Asset Relief Program, TARP, which barely covers the total loss for 2008 or the five consecutive quarters that the company declared a loss instead of a gain. They got another $20 billion in November of 2008 from the government and yet, Citigroup still declared a loss by the end of the year.

However, the company acknowledged they needed change. Originally, Sanford I. Weill formed Citigroup in 1998 when he combined the insurance company Travelers Group and the nation’s largest bank, Citigroup Inc. It was a revolutionary idea that was supposed to combine insurance, Wall Street business, and traditional banking together; what most of its shareholders quickly found was that it was a flop. Since Citigroup merged, its stock price has fallen more than 76%. Due to its faults, whatever they may be, Citigroup announced in January of 2009 that it would split the company into two facets: Citicorp and Citi Holdings.

Since Citigroup announced the idea for splitting up its company, it has given the government more control over the stocks; the taxpayers technically own up to 36% of them. Before March 10, analysts were predicting that Citigroup would require another loan from the government down the line, but they might be changing their tune soon. On March 9, 2009, the company received an internal memo stating that the first two months of the year were at an $8.3 billion profit before taxes in February. Citigroup’s profit announcement caused the DJIA to soar on March 10 379.44 points to 6926.49; it was the largest one-day gain this year and one of the biggest since World War II.

The spike in Citigroup stock does not mean that their troubles are at an end. Like most companies, big or small, there are difficulties that we all must face. By splitting the company into two, making it easier to manage, and allowing the management to prune the unnecessary waste within the corporation, the company cut back on its early losses in 2009. Small businesses can learn from the big businesses failures. By accepting that what their company originally did wasn’t working, Citigroup took the help that the government offered and tried fixing themselves. They didn’t continue on the same downward path, but tried something a little different. Small businesses will not have as massive of a bailout as Citigroup received, but there will be more opportunities within the government contracting arena that weren’t there before. Taking advantage of what the government offers and implanting change might be the key lesson that needs to be learned by the business community.

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