Ever since the beginning of the recession in 2008, Citigroup stood as a symbol of all that was wrong in the financial system. However this past quarter Citigroup posted a $2.2 billion quarterly gain, which marks the third consecutive quarter where Citigroup has had a gain. Citigroup has been taking technical steps that have allowed it to start its reemergence from its previous state of dismay.
Recently Citigroup as well as its rivals (Bank of America, GMAC, etc.) have been plagued by a problem called Robo-Signing. Robo-Signing is when there is a flood of paperwork from foreclosures which is caused when representatives sign off on foreclosures without verifying the information in the documents. Citigroup though is hoping to have avoided this documentation problem. According to Citigroup executives, the banks consumer banking division anticipated these mounting foreclosures close to 18 months ago. By anticipating these foreclosures Citigroup was able to its loan-servicing practices by bolstering employee training and tightening documentation practices. By doing this Citigroup has sidestepped an unnecessary setback which gives them a competitive advantage over other consumer banks. The bank has decided it does not need to set aside cash to cover Robo-Signing problems though. It has however raised its reserves to handle other potential mortgage problems that might force it to repurchase some loans. Citigroup’s mortgage servicing portfolio is a $500 billion, and over the past 3 quarters it has added about $322 million to cover the potential costs of faulty mortgages it will repurchase from Fannie Mae, Freddie Mac and other private insurers. The bank still has the problem though of finding a buyer for CitiFinancial, its large consumer lending franchise that serves lower-income customers, as well as a big portfolio of subprime credit card loans.
Citigroup is now on the path of emerging as one of the top consumer banks in America. By taking the steps it has taken, they are now in a place where they can compete with other banks. But Citigroup isn’t the only bank that is on an upswing. JPMorgan Chase, whose mortgage servicing portfolio is nearly twice Citi’s size, set aside about $1 billion last week, bringing its total to about $3 billion. This is a sign that consumer banking industry is finally starting to stabilize after several years of decline.
-http://www.nytimes.com/2010/10/19/business/19citi.html?scp=7&sq=consumer%20banking&st=cse
This is good news for the consumer banking industry as a whole. This is one of many indicators that point to recovery in the financial system. Hopefully all of the banks will continue to grow and strengthen the consumer banking industry.
ReplyDeleteOn a competitive level, this news clearly shows Citigroup's reemergence as a banking power after the financial crisis. Some of the other major banks have come under fire because of the "robo-signers." Does the fact that Citigroup has managed to avoid that issue make it more reliable than the other main consumer banks?