Strategic Alternatives (Too Big to Fail) – Citigroup, Inc. (2013)
Outcome: Omitted by SEC
Report on the Strategic Alternatives to Citigroup’s Structure
Resolved, that stockholders of Citigroup Inc. (“Citigroup”) urge that:
1. The Board of Directors should promptly appoint a committee (the “Stockholder Value Committee”) composed exclusively of independent directors to explore extraordinary transactions that could enhance stockholder value, including but not limited to an extraordinary transaction resulting in the separation of one or more of Citigroup’s businesses.
2. The Stockholder Value Committee should publicly report on its analysis to stockholders no later than 120 days after the 2013 Annual Meeting of Stockholders.
3. In carrying out its evaluation, the Stockholder Value Committee should avail itself of such independent legal, investment banking and such other third party advisers as the Stockholder Value Committee determines is necessary or appropriate in its sole discretion.
An “extraordinary transaction” is a transaction for which stockholder approval is required under applicable law or stock exchange listing standard.
Despite some positive steps taken since the start of the financial crisis, we believe Citigroup’s progress toward simplifying and de-risking its business has been slow and incomplete. Citigroup boasts many attractive attributes, but remains burdened by excessive complexity, as well as the stigma and risks associated with being named a “too big to fail” institution. These factors could threaten stockholder return through breakdowns in risk management, increased regulatory scrutiny, higher litigation expense, greater capital requirements and poor public perception, among other challenges.
Citigroup’s shares have consistently traded below book value since late 2008. Citigroup failed the Federal Reserve’s CCAR stress tests in March 2012 and regulators continue to forbid it from returning significant capital to stockholders due to concerns over its financial stability. A recent survey of U.S. consumers by the Reputation Institute ranked Citigroup’s reputation as 146th out of 150 major companies included in the study.
While there are economies of scale in banking up to a certain level, a point can be reached where the complexities of operation become such a burden that further growth reduces profitability. The evidence is mounting that Citigroup has reached the point where stockholders would benefit from restructuring. A growing number of market experts, including former Morgan Stanley CEO Phil Purcell and former FDIC Chair Shelia Bair, have voiced this opinion.
Citigroup has a number of business units that could thrive individually. At present, however, these businesses are managed together in a financial conglomerate that houses nearly $2 trillion in assets, billions more in off-balance sheet exposures, and approximately a quarter of a million employees across 140 countries with dozens of separate interest rate and currency regimes. Allowing Citigroup’s healthy business lines to operate independent of the overhang posed by the parent company’s complex risk exposures could ultimately prove more fruitful for stockholders than continuing on the present course.
We urge stockholders to vote for this proposal.