This is the sixth installment of my look at the Dow Jones Companies, the thirty finest American companies. Today we’ll be looking at Citigroup. This company is now trading somewhat in the doldrums due to the rather tricky credit crunch. Having already looked at JP Morgan, many banks are under pressure, underwater, could this be the right time to buy into the banking sector?
Citigroup (NYSE: C)
Citigroup is a worldwide financial service with 200 million accounts in more than one hundred countries. It provides a range of financial products to governments, consumers and corporations that includes investments, brokerage accounts, wealth management and consumer banking and credit. It merged with Travelers Group in April of 1998 and as of 2008 is one of the world’s largest banks (having dropped from first place just recently).
Citigroup began in 1812 as the City Bank of New York. As the company grew and absorbed other businesses and banking institutions, it diversified to include many different financial interests such as insurance companies and brokerage firms. Because of the diversity of its many branches, each balances out the other as financial cycles rise and fall.
Citigroup has historically been a very good investment due to this long-range planning for stability. However, the corporation has been involved in many questionable practices. In 2004, Citigroup disrupted the European bond market by selling billions in bonds and then buying them back cheaply when their trades forced the market to drop.
Would you tell your grandmother?
In 2005 the NASD levied more than $21 million in fines against Citigroup for violating mutual fund sales practices. In 2007, NASD again fined Citigroup more than $15 million for misleading retirees in seminars and not adequately disclosing risks to those investors. The banking institution was also heavily implicated in the Terra Securities scandal which negatively impacted the United States bond market. Just this year, in 2008, the attorney general of California disclosed that Citigroup was guilty of a computerized “sweep” that robbed its customers, mostly poor or recently deceased, and deposited their money in the bank’s general fund without notifying the victims of the robbery.
A Laggard, Really
Citigroup has underperformed for the past half decade, showing losses in nearly every quarter according to the Dow Jones Industrial Average index. Although the diversity of financial products and investments would seem to make Citigroup an excellent choice for a healthy portfolio, its questionable business practices and recent poor decisions should be cause for second thoughts. Whether or not business ethics matter to you as an investor, the recent spate of bank failures combined with Citigroup’s losses in the past few years indicate that a great deal of caution is advisable when considering Citigroup as an investment.
Caution is certainly the word: having grown its dividend steadily for years, the recent losses forced Citigroup to cut its dividend from 54 cents to 32 cents, this bank may warrant careful scrutiny if you should be interested in it. It currently falls at or near the bottom of the Dow Jones, and is of interest to Dogs of the Dow investors. But a look at the charts indicate that it has lost more than 60% of its stock value since the latter part of 2007. It is currently still loss making. Are you willing to take a punt? But then when there are still lots of other profit making banks out there, why would you?