Now Reed’s numbers speak for him. Citi, the bank that couldn’t shake the label “troubled,” has turned into a money machine. This year’s profits are headed for a record $3 billion. Capital, the last line of defense against bad loans, is nearly on a par with that of other big banks after falling dangerously low. Investors have taken the bank’s shares up 21 percent this year even as rising interest rates have ravaged other bank stocks. Skeptics such as Prudential Securities’ analyst George Salem, who had trashed the stock for 19 years, are suddenly showering praise upon John Reed. Says Salem: “During all the troubled years, he kept the investment going in the areas that held the most promise.”
Reed’s success comes from following the same strategy that earned brickbats for a decade – milking a powerful credit-card business at home while crafting a role as the only bank to serve families and local businesses all over the world. Reed made his reputation as a computer guru, and Citi’s technological sophistication is still its key advantage. In Japan, where it’s the only foreign bank with a branch network, innovations as simple as keeping teller machines open 24 hours – most Japanese ATMs close by 7 p.m. – have won customers. In Germany, Citi’s electronic services have helped it build a thriving consumer business where other U.S. banks have thrown in the towel. And as economies throughout Latin America and Asia have moved into high gear, Citi’s focus on the upper-middle class in places like Brazil and Taiwan has paid off big. “Five years ago they were a pariah for their franchise in the developing world,” says former Citi exec Thomas Theobald, now a Chicago venture capitalist. “Today they’re a hot stock because they’re in emerging markets. Nothing’s changed but the perception.”
Citi seems poised to muscle back into markets where it once was king. Topping the list is mortgage banking. To become the nation’s largest home-loan originator in the 1980s, Citi shoveled out money without checking borrowers’ incomes and assets. Predictably, horrendous losses followed, and Citi is still on the line for $10.7 billion of loans now in other investors’ hands. But after scaling back the business to fix its problems, “Citicorp is planning a comeback,” says Stuart Feldstein of SMR Research. Citi admits that a mortgage bank is on its shopping list, but says it’s in no hurry to strike a deal.
Despite strong performance abroad and sharply lower operating costs at home, Citi’s resurrection is far from complete. Investment banking, once its forte, is lagging. And while Citi is a powerhouse in currency trading, it isn’t on the leading edge of the complicated swaps and options that are now widely used in corporate finance. The problem may be cultural: Citicorp managers have traditionally enjoyed great autonomy, and getting loan officers in Singapore to collaborate with bond underwriters in London and options traders in New York doesn’t come easily. So far, Reed hasn’t succeeded in breaking down the fiefdoms in business banking. If he does, he’ll be hard pressed to keep an admiring press away.
