Citigroup Inc.

Creating Citigroup

The bruising chain of events for Citigroup was a giant comedown from Mr. Weill's hopes. To create Citigroup, he had led the lobbying effort to repeal the Depression-era Glass-Steagall laws separating commercial and investment banks, had pushed out Citicorp's head, John Reed, after an awkward period in which they were co-chairmen and installed his longtime lawyer, Charles O. Prince, as his successor.

Under Mr. Prince, Citigroup charged aggressively into the trading of mortgage-backed securities that were the hot product on Wall Street at the time. As late as the summer of 2007, as evidence mounted of a collapse in the housing market, Mr. Prince declared that the bank was "still dancing."

Not much later, the music ended, and Mr. Prince was out in November of that year as the bank posted a $5.9 billion loss.

The Financial Crisis

The loss turned out to be the first of many. Citigroup losses for 2008 totaled $27.7 billion, among the largest in corporate history.

Citigroup's first cash infusion from the government came in October 2008 in a $25 billion capital injection from the Troubled Asset Relief Program, or TARP. The bank's breakup plan came after a stern regulatory warning it received in late November 2008, when its rapidly deteriorating share price prompted the government to give it a second cash infusion, of $20 billion. Federal regulators also leaned on Citigroup to shake up its board and on Jan. 21, Richard D. Parsons, the former Time Warner chairman, was named its new chairman.

A new strategy, put into place by its chief executive, Vikram S. Pandit, focused its executives' attention on its stronger remaining businesses while winding down its money-losing operations.

Restructuring and a Greater Government Stake

By segmenting Citigroup into Citicorp and Citi Holdings, run by separate managers, Mr. Pandit seemed to be setting the stage for a spinoff of Citigroup's stronger operations, or an eventual merger. Meanwhile, reporting the two sets of businesses separately should burnish its quarterly results by making it easier for investors to focus on its healthier operations.

On Feb. 27, 2009, Citigroup and Treasury officials reached an agreement that vastly increased government ownership of Citigroup, to 36 percent. Under the deal, the Treasury Department agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock, giving taxpayers more risk, but more potential for profit if the company recovers. The government will not put in any additional money for now, but some analysts believe Citigroup may require more down the road.

Under pressure from federal regulators, the bank reorganized its management team repeatedly, naming three new chief financial officers in four months and swapping out or pushing aside other high-level executives.

On Jan. 19, 2010, the bank announced that a loss for 2009 of about $1.6 billion. Citigroup reported a $7.6 billion loss for the fourth quarter after a $10.1 billion accounting charge tied to the repayment of its bailout money erased any chance of a profit.

The weak sale on Dec. 16 represents a significant setback for Mr. Pandit and his efforts to free the bank from government control. It also underscores the lingering worries over Citigroup's financial health, as well as concerns that federal officials may have let Citigroup exit the bailout program too soon.

It now seems certain the government will maintain its entire stake in the bank for many months.

After two years at the helm, Mr. Pandit is facing a crucial year at the troubled giant. He must staunch the losses in the bank's consumer businesses and shift the bank's strateg, and investors are growing impatient. He must mollify his top managers and discourage bankers and traders from fleeing. All the while, he must address the demands of a multitude of government overseers. Although Citigroup has repaid its bailout money, taxpayers still own 34 percent, as well as preferred stock worth billions of dollars.

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