Largest Banks in the World Citicorp and Citibank Part 3

About one of the largest banks in the world Citicorp or Citibank, history, trivia, and random facts, seamier sides.

BEHIND THE TELLER'S WINDOW--THE BIG BANKS

Citicorp

Seamy Side: National City bank organized a securities affiliate, the City Company of New York, that during the 1920s became the largest distributor of corporate securities in the world. National City thus had the ability to unload questionable securities on an unsuspecting public. The company often bought bonds from Latin American governments without studying whether they were good investments. After purchase, those that looked good enough to keep became part of the bank's portfolio, while the others, which might become worthless, were sold to the public.

Citibank has taken the lead among U.S. banks in shifting its business to offshore tax havens such as the Bahamas. This places the bank's operations outside the regulatory authority of U.S. federal agencies and effectively shields the bank's operations from the knowledge of Congress and the public. The bank moved about $1 billion in loans from New York to the Bahamas, which meant a potential tax loss to New York State of about $10 million, or almost 10% of New York's total tax receipts from commercial banks. New York loses the tax revenue even though the physical transactions may take place in New York. The bank merely records the loan as having taken place in the Bahamas, and the written documentation appears on the bank's Bahamian stationery.

The Bahamas are also used to get tax advantages on so-called "back-to-back" loans. In these loans the bank takes a deposit from a company in one country and agrees to lend the same money to the company's affiliate in another country. These loans are normally used to allow a company located in a country with controls that restrict the movement of money to move money to an affiliate in another country.

In the Bahamas, with its lack of taxes, the company's subsidiary deposits money, and the interest it earns is not taxed. Then the parent company borrows the same money and deducts its interest payments as a legitimate business expense.

Extra Dividends: Shortly after Richard Nixon was elected president in 1968 on a campaign promise that he had a secret plan to end the Vietnam War, Forbes magazine reported that Citibank had decided to open a branch in Saigon to serve its corporate customers. (IBM, NCR, Pan Am, Singer, and Foremost were in Vietnam before Citibank, a bank officer explained.) Citibank compared itself to its banking competitors, who sometimes left countries that had unstable governments. "We're not like some other banks," a Citibank official said. "We stay in a country until we get kicked out." In June, 1975 Citibank was ordered out of Saigon by the North Vietnamese.

* In 1976, 13% of Citicorp's after-tax profits came from Brazil. Only the U.S. provided more profits. Profits from Brazil exceed the combined profits from the next two most profitable countries for Citicorp--the United Kingdom and West Germany.

* Citicorp's annual report is published in English, French, German, Japanese, and Spanish.

* Because of its profitability, Citibank is sometimes referred to as "Fat City." Since 1972 it has made over 60% of its profits outside the U.S., even though until 1974 it had fewer than 50% of its assets outside the U.S. Its return on assets has been consistently higher outside the U.S. than inside the country. For example, although it had 51% of its assets in foreign countries in 1974, it made 68% of its profits in those countries.

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