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Citigroup (C)
A Soap Opera Unfolds at Citigroup
Wall Street is not a soap opera, but in recent weeks the line between television drama and financial markets has blurred. Headlines over the last two weeks have been following the business relationship between Todd Thomson, a Citigroup manager, and Maria Bartiromo, a CNBC anchor. Allegations of misuse of corporate jets, show sponsorships and private time in a palatial office have been flying, effectively turning investments into a sideshow compared to gossip. For New York-based Citigroup, things are looking either very bad or very good, depending on whose side you are on. For CEO Chuck Prince, the scandal has detracted investors from sub-par earnings. For Todd Thomson, he is now looking for a new job. After the smoke clears and interests shifts, what is Citigroup going to do to bring back some shareholder value?
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Investment firms often find themselves embroiled in some sort of unscrupulous activity. From firms biasing research toward certain companies to assessing huge fees on consumers, controversies have a way of shaking up management and angering investors. Recently, Citigroup has found itself in a new scandal involving a business journalist and a chief of a major department. The issue: that Todd Thomson, the head of Citi's global wealth management wing, had given special attention to CNBC's Maria Bartiromo (the "Money Honey"), a business news anchor. The way the actual events unfolded seems to be akin to celebrity gossip or a movie more so than financial news. Rumors have been flying that Thomson gave special preference to Bartiromo, including a trip from China in a corporate jet, spent time with her in his lavish office, and dropped $5m on a Sundance Channel program (a TV channel) that she hosted. The business anchor reported extensively on Citigroup-related stories (11 times since 2004), and even indicated that she owned 1000 shares of the stock in 2003 (considered unethical behavior for journalists). The level of the relationship between the two has not been completely disclosed.
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The events came to a head on January 22, when Chuck Prince, Citigroup's CEO, fired Thomson for his relationship with Bartiromo. The news put CNBC (a venture between GE (GE: Charts, News, Offers) and Vivendi SA) on the defensive, and forced them to defend their anchor or risk her defecting to a rival station. The wild news came at a relatively opportune time for Chuck Prince, whose tenure at the helm of Citigroup has produced relatively poor returns compared to competitors. Since the start of 2004, Citigroup stock has made a three-year journey from $50/share to $55/share, a paltry rate of growth. For perspective, Bank of America shares (BAC: Charts, News, Offers) grew nearly 40%, and JP Morgan Chase (JPM: Charts, News, Offers) shares grew by 30%. Shares skyrocketed between 1995 and 2000 (up from $5 to $60, but have remained flat since Prince took over in 2003.
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Some speculation has swirled around the level of truth surrounding the Thomson/Bartiromo scandal. Considering that the story broke three days before Citi released another sub-par round of earnings, one can't help but wonder whether or not some alteration of facts was released in order to divert investor attention elsewhere. While Thomson's office (nicknamed the "Todd Mahal") was lavish, it was not exceptionally different than many other offices used to lure in big money clients. All in all, the soap opera might be more of a smear campaign designed to eliminate potential candidates for the CEO position. The earnings report announced just days after the scandal showed that expenses were rising faster than revenues. In 2006, overall earnings fell to $21.5bn, a drop of 12%.
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Does Citi have a long-term plan? Many are uncertain. Much will depend on how the company performs over the next few quarters. If earnings turn around and costs are lowered (which Prince pledged to do), it is somewhat unlikely that Chuck Prince will lose his job. If another round of poor performance is seen, it's quite possible that management will be shaken up, or that the company could be split off into separate units.
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Profile |
The Company's principal activities are to provide financial services through five divisions: Global consumer includes consumer franchise encompassing, banking, lending, credit card services and wealth management services. Global Corporate and Investment bank includes investment banking, retail brokerage, corporate banking, cash management and commercial insurance. Global Weailth Management provides investment advice, financial planning and brokerage services. Global Investment Management offers life insurance, annuity and asset management services & Proprietary Investment activities includes the Company's venture capital activities, the realized investment gains & losses related insurance-related investments. On 30-Apr-2004, the Company acquired 99.8%of outstanding shares of KorAm Bank, on 09-Jan-2004, Washington Mutual Finance Corporation and Principal Residential Mortgage, Inc. On 31-Mar-2005, the Company acquired First American Bank.
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