The objective of this initial report is to begin examining what is now the nation's largest bank. Citigroup has now become a fee mill, both in the consumer and investment banking areas, the opposite of what the Internet was expected to bring. The primary tools used to crush new, more cost effective competition are the pooling method of acquisitions and other forms of financial engineering. The pooling loophole allows two companies to merge, combine their financial statements and ignore the cost of the merger. The SEC fights hard to end pooling, while Citigroup and Cisco Systems counter by trying to persuade Congress to overrule them.
Banks are simply intermediaries.
They have little key intellectual property and competitive forces generally do not allow for large gross margins, therefore book value does matter, as do dividends. Dividends keep banks honest and surprisingly, Citigroup's dividend yield is now only 1.1 percent. Bank of America, Bank One and Wells Fargo's dividend yields are 4.5, 2.5 and 2 percent respectively. More important is that Citigroup is now essentially decapitalizing itself using pooling-based mergers and could pose a severe risk to the banking sector given its low book value and other peripheral risks. Long-term oriented shareholders should be concerned and demand reform.