1. Why do you think it was so hard to integrate the different companies that were merged?
2. What are some challenges involved with managing a very large, diverse financial services company?

You must explain you answer using information from the given chapter. Each of your answers should be between 100 and 300 words.

Citigroup: The Opportunities and Risks of diversification

In 2015, Citigroup was a $70.1-billion, diversified financial-services firm known around the world. However, its history had not always been smooth. From the late 1990s through 2010, the company’s diversification moves, and its role in the mortgage crisis, combined to bring the company to its knees, raising fears that the venerable bank—one of the oldest and largest in the-United States— would not survive.

Citi group traces its history all the way back to 112, when it was formed by a group of merchants in response to the abolishment of the First Bank of the United States (the First Bank’s charter had been permitted to lapse due to Thomas Jefferson's arguments about the dangers of centralized control of the economy). The merchants, led by Alexander Hamilton, created the City Bank of New York in 1812, which they hoped would be large enough to replicate the scale advantages. We that had been offered by the First Bank. The bank played some key roles in the rise of the United States as a global power, including lending money to support the purchasing of armaments for the War of 1812, financing the Union war effort in the mid-1800s, and later pioneering foreign-exchange trading, which helped to bring the United Stated to the world stage in the early 1900s. By 1929, it was the largest commercial bank in the world.

The bank’s capital resources and its trusted brand name enabled it to successfully diversify into a range of consumer banking services. The highly innovative company was, for example, the first to introduce savings accounts with compound interest, unsecured personal loans checking accounts, and 24-hour ATMs among other things. However, its business remained almost entirely within traditional, retail-banking services. That would soon change with the rise of a new concept: the “financial supermarket.”

During the 1990s, there was much buzz in financial industry about the value of having a wide range of financial services within the same bank. Why have your savings account in New Jersey, your stock broker in California, and you insurance agent in Maryland, when you could have them all under one roof? Merging such services would enable numerous “cross-selling” opportunities: Each company’s customer bases could be more fully leveraged by promoting other financial products to them. Furthermore, cost savings might be realized by consolidating operations such as information technology customer service and billing, and so forth. In 1998, Sanford “Sandy” Weil, who had already begun creating his own financial supermarket. Which included Travelers insurance, Aetna, Primerica, Salomon Brothers, and Smith Barney Holdings, convinced Citicorp chairman and CEO John Reed that the two companies should merge. Travelers Group purchased all of Citicorp’s shares for $70 billion, and issued 2.5 new Citigroup shares for each Citicorp share. Existing shareholders of each company thus owned approximately half of the new firm. The merger created a $140-Billion firm with assets of $700 billion. Renamed Citigroup, it was now the largest financial services organization in the world.. . . . . . .

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