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Citigroup Inc. Chief Executive Officer Jane Fraser was blunt about the need for a makeover at the company, telling investors it will take time and money before paying off. Bloomberg's Sonali Basak reports.

In his 2001 letter to Berkshire Hathaway shareholders Warren Buffett stated, \"[Y]ou only find out who is swimming naked when the tide goes out.\"1 In the fall of 2008, the tide went out when Lehman Brothers collapsed and credit markets froze. Left exposed were the shoddy—and sometimes fraudulent—practices of participants in the theretofore esoteric industry of structured finance. Since then, the Securities and Exchange Commission (SEC) has extracted billions of dollars in settlements from the industry. A frequent enforcement tool of the SEC has been the consent judgment, a hybrid settlement that contains injunctive elements. This Note examines the role of the SEC in relation to Article III courts, specifically in the context of consent judgments. Drawing on the rich history of equitable practice and the doctrine of the separation of powers, this Note argues that SEC v. Citigroup Global Markets was wrongly decided in that it excessively curtails the role of district courts in determining the propriety of equitable relief. The opinion not only contradicts longstanding precedent, but also goes too far in ceding a core function of the judiciary to the SEC. This Note shows that, as a result, the decision serves to undermine fundamental goals of the securities laws.

The financial collapse of Fannie Mae and Freddie Mac in 2008 led to one of the most sweeping government interventions in private financial markets in history. The bailout has already cost American taxpayers close to

Purpose - This paper aims to analyze the impact of conjectural \"too-big-to-fail\" (TBTF) guarantees on big and small US financial institutions' stock prices during the 2008-2009 banking crisis. Design/methodology/approach - The paper analyzes shocks to stock market investors' expectations of government aid to banks in distress and respective spillover effects using an event study approach. We focus on three major events in late 2008, namely, the Lehman bankruptcy, the Citigroup bailout and the first announcement of the Capital Purchase Program (CPP) by the US Government. Findings - The authors found significant differences in market reactions to the respective events between small and large banks. For both the Lehman and the CPP event, abnormal returns on big banks' stocks are negative, while small banks' stocks tend to generate positive abnormal returns. In contrast, large banks strongly outperform small banks in the case of the Citigroup bailout. Results for a control group of non-financial firms indicate that this behavior may be specific to the banking industry. The authors observed significant spillover effects to both competitors and non-competitors of Lehman and Citigroup, and concluded that while the Lehman event shook the widely held belief in an implicit TBTF subsidy to large banks, the TBTF doctrine was reinstated shortly thereafter. Originality/value - This paper shows that conjectural TBTF guarantees are priced in by equity investors. While government aid to large banks in distress may prevent negative effects on the stability of the financial system, it may also create negative externalities by putting small banks at a competitive disadvantage. The findings suggest that US and European regulators' recent policy measures directed at establishing reliable bank resolution schemes should be a step in the right direction to level the playing field for small and large financial institutions.

Citigroup has served as the poster child for the elusive promises and manifold pitfalls of universal banking. When Citicorp merged with Travelers to form Citigroup in 1998, Citigroup’s leaders and supporters asserted that the new financial conglomerate would offer unparalleled convenience to its customers through ‘one-stop shopping’ for banking, securities and insurance services. They also claimed that Citigroup would have a superior ability to withstand financial shocks due to its broadly diversified activities. By 2009, those bold predictions of Citigroup’s success had turned to ashes. Citigroup pursued a high-risk, high-growth strategy during the 2000s that proved to be disastrous. As a result, the bank recorded more than US$130 billion of losses on its loans and investments from 2007 to 2009. To prevent Citigroup’s failure, the federal government provided $45 billion of new capital to the bank and gave the bank $500 billion of additional help in the form of asset guarantees, debt guarantees and emergency loans. The federal government provided more financial assistance to Citigroup than to any other bank during the financial crisis. During its early years, Citigroup was embroiled in a series of high-profile scandals, including tainted transactions with Enron and WorldCom, biased research advice, corrupt allocations of shares in initial public offerings, predatory subprime lending, and market manipulation in foreign bond markets. Notwithstanding a widely publicized plan to improve corporate risk controls in 2005, Citigroup continued to pursue higher profits through a wide range of speculative activities, including leveraged corporate lending, packaging toxic subprime loans into mortgage-backed securities and collateralized debt obligations, and dumping risky assets into off-balance-sheet conduits for which Citigroup had contractual and reputational exposures. Post-mortem evaluations of Citigroup’s near-collapse revealed that neither Citigroup’s managers nor its regulators recognized the systemic risks embedded in the bank’s far-flung operations. Thus, Citigroup was not only too big to fail but also too large and too complex to manage or regulate effectively. Citigroup’s history raises deeply troubling questions about the ability of bank executives and regulators to supervise and control today’s megabanks. Citigroup’s original creators – John Reed of Citicorp and Sandy Weill of Travelers – admitted in recent years that Citigroup’s universal banking model failed, and they called on Congress to reinstate the Glass-Steagall Act’s separation between commercial and investment banks. As Reed and Weill acknowledged, the universal banking model is deeply flawed by its excessive organizational complexity, its vulnerability to culture clashes and conflicts of interest, and its tendency to permit excessive risk-taking within far-flung, semi-autonomous units that lack adequate oversight from either senior managers or regulators.