Is Citi back from the dead?

On October 5, Citicorp seemed to have hit a new low. It announced the departure of Richard Braddock, its president, chief cost-cutter and second-in-command to chairman John Reed. The bland formula used to explain his going failed to convince. He left, the bank claimed, "after concluding that his contribution to the recovery of Citicorp's momentum has been realised and accordingly he wants to pursue new career opportunities". The immediate reaction of investors was hostile. "I was shocked, even alarmed, when I heard the news," says one fund manager.

Though not a banker by training – Braddock was a consumer product specialist from General Foods – in 19 years at Citibank, he gained the reputation of a highly competent general manager, a good complement to Reed the strategic thinker. But his power within the bank had been diminished by the management changes in January which placed Pei-yuan Chia in Braddock's former job as head of global consumer banking.

Braddock worked as normal on the day of his departure. He did not act as if anything unusual were afoot. The lame official explanation gave rise to wild rumours, including one that Braddock had taken a run at Reed's job. Others suggest that Braddock was not the hatchet man everyone thought and his spending plans conflicted with Reed's cost-cutting priority. According to one source: "Braddock's idea was to grow the business on the consumer side. He wanted to throw money at it and fell out with Reed over this." Says another: "It was probably a smart thing for Reed to do. At heart, Braddock is not a banker."

Whether he jumped or was pushed, Braddock's exit added to Citi's woes as it sought to push through a preferred equity redemption cumulative stock (PERCS) issue to raise essential new capital. This year a series of mishaps has distracted attention from Citicorp's operating improvement. In August, the bank revealed that the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency (OCC) had required it to sign a memorandum of understanding (MoU) with them in February. This confirmed what was generally known, that the regulators were – if not exactly camped outside the boardroom – keeping a close eye on nation's largest bank. Outsiders asked what else, of perhaps greater and more sinister substance, the bank might be hiding.

In August, Citicorp was required by its regulators to re-state second-quarter net income to $143 million, down from the originally stated $171 million. This reflected the regulators' concern that Citicorp had not sufficiently allowed for future mortgage pre-payments. In September, a strongly-worded OCC report dated August 18 1992 criticising Citicorp's residential mortgage business was leaked to the press. Again, the bank had already acknowledged problems at the mortgage unit, where it had pursued high volume growth by offering low documentation mortgages. There was little attempt even to check whether applicants had a source of income.

These problems have concealed the achievements. Citicorp is back from the dead. The real-estate crisis pushed the bank to the brink of collapse. But Reed deserves credit for forcing through a two­year turnround plan, even as the US recession stacked the odds ever higher against him. He even intervened to rescue the PERCS offering. Reed has been unusually reticent since 1990. But he took to the road to sell the PERCS offer and disarmed many investors who had come prepared to attack him. He admitted the bank's many mistakes – something Reed always manages to get away with – and focused attention on his cost-cutting programme. His performance, and a generous coupon, saved the day and the deal was increased from $650 million to $1.1 billion.

At some stage towards the end of 1990 – it is difficult even for those close to him to pinpoint exactly when – it began to dawn on Reed what a terrible mess America's largest bank was in. The ugly state of the bank's commercial real-estate loan portfolio – especially its commitments to large office building projects – was becoming clear. Following its entanglement for much of the 1980s in less-developed-country (LDC) debt and its later flirtation with highly-leveraged-transaction (HLT) loans, the bank found itself fast running out of capital and friends.

At the end of 1990, the bank's ratio of tier one capital to assets stood at 3.26%, well below the 4% Bank for International Settlements (BIS) minimum. The share price closed the year at $12.63, down from $28.88 at the end of 1989. In 12 months, the stock had fallen from a 20-year high to a near 20-year low. It was eventually to collapse to $8. In one year, Citicorp shareholders had watched $5 billion of market value evaporate. Some were furious and rumour put the chairman's job in danger. Even Reed, a man not renowned for showing alarm in the face of adversity while he guided Citicorp through the LDC debt crisis, was shaken.

In his first reaction, he lived up to the public caricature of Reed the detached philosopher/visionary. He brought in a group of consultants – "and these were not your conventional business type consultants", says one source. Reed, according to this source, re-worked his vision of banking, concluding that, in the developed world at least, it is a slow-growth, over­regulated business with unfavourable risk/return characteristics in its basic component, commercial lending.

He further concluded that the best management philosophy for the bank was to constrain growth within the limits of each market and to excel at the control aspects of the business: expenses and credit quality. Citicorp had to do the opposite of what it had been doing for the previous 20 years.

Then something surprising happened. Reed the thinker gave way to Reed the man of action. He drew up and enforced a five-point plan to improve the bank's operating earnings sufficiently to absorb the coming credit costs. This dictated that Citicorp should focus on the short-term in 1991 and 1992, cut costs by $1.5 billion a year, trim the senior management, raise $4 billion to $5 billion in capital, and to do all this without selling off or hurting the core consumer and wholesale businesses around the world.

Now, as 1992 draws to a close, Citicorp management can look back over the last two years and feel proud. They have delivered what they promised in the five­point plan and that in spite of much worse economic conditions than they imagined when it was first conceived in late 1990 and early 1991. "In 1990 we did not expect the consumer write-offs," Reed told a gathering of analysts at the end of October. "It has been different than we first thought and harder because of the economy." Reed returned regularly to the theme of the "horrible" US economy. "I cannot tell you what a shaky economy this is," he said.

In 1990 the bank's operating margin was $4.8 billion. By the end of 1992, on an annualised basis, it will be $7.2 billion, bang on target. The bank has absorbed $3.3 billion in write-offs and cost-of-carry of commercial real estate, and added $3.9 billion of capital and $1.9 billion of reserves in seven quarters from the start of 1991 to September 30, 1992. The offering of $1.1 billion of PERCS in October raised tier one capital to 4.5% of risk-adjusted assets and will eventually bring it to 4.75% as more of the proceeds can be accounted tier one capital in a ratio to future retained earnings.

Reed hammers at the theme of the terrible economy because he blames it for the bank's lack of revenue growth. Much of Citicorp's achievements in the last two years come down to cost-cutting. Total staff have fallen from 100,000 to 82,000; consolidation has come to the bank's US mortgage service operations and US insurance service operations. Automation systems for all US branches are being unified; telecommunications resources were consolidated in 1991; a single special purpose vehicle has been created to fund credit-card receivables through issues of commercial paper, so cutting borrowing costs; other special-purpose vehicles are being reviewed to ensure that they are necessary.

In Europe, Citicorp has continued to rationalise in consumer banking, selling marginal operations in Austria, Italy and France, quitting the UK and concentrating its efforts on Germany, Belgium, Greece and Spain. It has eliminated one of two credit-card processing centres. The wholesale bank has concentrated its European data processing at one UK location.

Although Citicorp had its fair share of fat and waste, this was not always an easy process. The public figures reveal how cost-cutting efforts nearly stalled in the middle of last year. By the end of 1990, Citicorp was operating on a ratio of adjusted expenses to revenue of 70%. That came down quickly to 64.5% in the first quarter of 1991 and 63.9% for the second quarter. Then the third quarter offered only a marginal improvement to just 63.7%.

Citicorp's third quarter 1991 results were remarkable for other, even more depressing reasons. The bank reported an $885 million loss after taking $930 million of additions to reserves, restructuring charges and writedowns including a $400 million charge for Quotron. The board, on management's recommendation, suspended the dividend. The recession was biting into consumer banking revenues. That quarter's $472 million of net consumer write-offs compared to $337 million in the third quarter of 1990. The consumer provision was $514 million, against $356 million in 1990.

Reed responded by steeling the bank to re-double its expense-reduction effort to compensate for low revenue growth and to cover credit costs. In January of 1992, Reed unveiled a new management structure. A new buzzword was "cross-cutting". From January 1992 all of Citicorp's 15 business heads have been meeting once a month to discuss ways of improving margins not just within their own businesses but across the company as a whole. It is a cumbersome process. The one-day monthly meetings have a tendency to run to two days and even three. But it seems to be working. The adjusted operating expense-to-revenue ratio has resumed its downward path to 55.5% for the third quarter of 1992.

These improvements have so far only been seen in the operating margin. Credit costs in real estate and the consumer bank and additions to provisions have prevented these revenues from flowing through into net income. For the first three quarters of 1991, net income has been $442 million, or just $0.78 per share. But the operating improvement has not gone entirely unnoticed. Citicorp's share price has risen from its low this year of about $10 to $18.5.

Now Citicorp's shareholders hope that consumer credit costs have peaked, that real-estate credit costs will decline and that in 1993 and 1994, Citicorp will begin to deliver strong earnings figures particularly from its overseas consumer and wholesale businesses.

A fund manager at one institutional holder of Citicorp stock claims: "I believe that the Citicorp franchise is an extraordinarily valuable one and that, cleaned up, it will be one of the best banking businesses in the world. Its presence on the ground around the world is unique. And the market does not yet recognise it."

While most US banks have been cutting back their international wholesale operations and abandoning consumer banking overseas, Citicorp has done neither. It has substantial consumer banking operations in 37 countries. In Germany, for example, where it has over 300 branches, Diane Glossman, an analyst at Salomon Brothers, estimates it could earn as much as $80 million next year. The bank's three-year investment programme in non-US credit cards is beginning to pay off. Most significantly of all, Citicorp' s long established network in Asia and Latin America places it right in the heart of the brightest growth markets in the world. "What excites me is that the Citicorp story is only just beginning," says one major shareholder. "They have been building reserves, write-offs are coming down, I think it is about to print serious numbers on the bottom line."

Art Soter, an analyst at Morgan Stanley, claims: "It is a very strong, unique international franchise. No one could replicate it today. This company has the potential to be one of the world's great companies with earnings of $4 billion to $5 billion by the end of the decade." On a more short­term outlook, many analysts suggest that the company could earn $3.00 per share at least in 1994 and $4.00 per share in 1995, with many suggesting a price for the stock of $30 or over.

But at the moment the stock price is roughly at the same level it was in the early 1970s. Even though a growing fan club of analysts and institutional investors are buying the Citicorp turnround story, many investors and a few analysts remain sceptical. Citicorp management has largely forgone the privilege of being taken on trust. Many outsiders will only believe in Citicorp's earnings potential when they see it. Even one enthusiastic new convert to the Citicorp faith reminds himself: "In the last two decades this company has disappointed in all but a handful of years. History says that it has been a destroyer of shareholder value, that it has been a failure."

Frank DeSantis an analyst at Donaldson, Lufkin & Jenrette claims: "You cannot argue with the facts. And the facts are that this company is producing almost $2.5 billion more in core earnings than it was two years ago." Citicorp has turned the corner. But to assess where it goes from here, requires paying attention to other indicators than the core earnings margin.

In the short term, Citicorp is unlikely to hit another wall of credit problems. It has already marked its commercial real-estate portfolio in line with current values to about 55% of face value. Citicorp has said that it expects commercial credit costs – including write-offs and cost-of-carry of real estate owned – to decline to $400 million a quarter for 1993 from $450 million a quarter this year, and for consumer write-offs to stabilise at $750 million a quarter. Given recent low demand, the bank will have few new loans that might turn sour.

The bank's followers hope that by the time loan demand revives, Citicorp will have inculcated a new credit culture that will protect it against serious future problems. Reed is attempting to instill such a discipline. Vice-chairman William Rhodes is heading a task force re-evaluating the bank's credit policies and procedures. His fellow vice-chairman, Onno Ruding, is also involved.

Reed has admitted to analysts, in a substantial understatement, that "this company has been accident prone", and revealed there are two elements to the effort to rectify this. "We have made the extension of credit more of a line management process." And "more importantly, senior management is taking a portfolio look at the overall risk profile of the company which we did not do before and which maybe we should have".

Line managers will have to take more responsibility for individual loans, rather than evading blame for problems by hiding behind credit committees. Senior management will monitor overall exposure by seven criteria relating primarily to credit quality as well as to overall exposure to industry groups and individual borrowers.

This initiative has received scant outside attention from a marketplace partially blind even to the more obvious core earnings turnround. For the long term it is highly significant. It points to the magnitude of Reed's task aside from the five­point plan, which is now being completed. This is nothing less than to re-orient the long-established culture of a bank which operates in a wide variety of businesses in 93 countries, employing 82,000 people.

Reed talks about keeping to the basics. And he admits that one of the bank's two main mistakes was always to look at earnings and make "no allowance for credit". (The second was not to take a top-down portfolio view of the book.) The truth is that the bank operated for a number of years without a credit culture. How could that happen?

The answer probably lies in the management philosophy which the company developed over many years before Reed's appointment as chairman. This was to be decentralised and to encourage an entrepreneurial spirit through internal competition. Citibank raised this to a fine art. It would pit two or three officers against each other for the same job. That bred an atmosphere of mistrust and an obsession among executives to drive earnings within their own profit centre and hang the consequences for anyone else. Citibank became a bank in which people did not talk to each other and were motivated to hide problems rather than address them.

Reed's experience typifies the philosophy. In 1980, then chairman Walter Wriston named Reed, Thomas Theobald and Hans Angermueller as senior executive vice-presidents. They were to fight it out between them for the top job. After Reed won the battle in 1984, he did not interfere much with Theobald, the head of the wholesale bank. Reed's own background was in transaction processing and consumer banking. Nor did he interfere much with Larry Small who took over when Theobald departed.

Now, Small and his successor Michael Callen, themselves both departed, are blamed for the problems which Citicorp faces in leveraged credits and commercial real estate. "John trusted his lieutenants a little too much," says one inside source. It is not much of an excuse. If you encourage de-centralised management, then you should be judged by the quality of managers you appoint.

Reed now appears to be making a genuine effort to reverse this strategy. The new initiative on the credit culture and more importantly, the regular meetings of the 15 business heads with the five members of the chairman's office – Reed, Bill Rhodes, Onno Ruding, Pei-yuan Chia and Paul Collins, head of finance and administration – are testimony to this. "A monumental change is under way inside this company," claims Soter.

One fund manager agrees, claiming that he detects a new attitude among Citicorp management. He points to Reed's humble confessions during the PERCS road show. And though investors have witnessed such breast-beating before, this time it may be genuine. "Remember this was not like destroying Scrimgeour Vickers, or wasting money on Quotron. This time it was different. This time, they nearly went under."

It will take years for a new culture to spread through the organisation, just as the old culture developed over decades. Will executives bred in that culture have the will to crush it and build a new bank? A by-product of Citicorp's cut-throat atmosphere is an arrogance among those who survive, which outsiders can find extraordinary. "They still hate to be questioned over anything they are doing," says one shareholder. "They always answer that any nay-sayers are just like the people who warned against going into credit cards. It is the most specious argument I have ever heard." Adds another shareholder: "Probably, in their hearts, they are revenue chasers still." Furthermore, Citicorp did not originally adopt the de-centralised approach arbitrarily. What other way to run such a huge and diverse company?

One issue that Citicorp may address is splitting the role of the chairman and chief executive, both now filled by Reed. Reed may be a wonderful chairman and a great strategist – it was his initiative that in the 1970s drove Citibank into the consumer business, while many senior executives kicked and screamed. That now looks like the smartest thing the bank ever did. The global consumer bank now earns $1 billion even with a $3 billion credit cost of carry. It is a 20% return on equity business. Reed, perhaps playfully, describes Citicorp now as "basically a consumer bank". It has a large wholesale bank added on to it.

As a manager, he has been less successful. Reed himself acknowledges: "This company has been very good with regard to strategy but pretty lousy with regard to execution." Did he act quickly enough on the HLT and real estate problems? As most big banks make the same kind of dud loans, one of the arts of bank management is to recognise problems early and act. Reed, according to some sources, could see the problems in the commercial bank early in 1990, but went into a period of denial, before attacking the problem later in the year.

Although Citicorp has said it will not revive the post of president, which Braddock once filled, there are rumours that the bank is searching for a replacement for Braddock. Citicorp must overcome one major obstacle: a lack of capital compared with its competitors. Reed inherited three problems from Walter Wriston – the LDC debt crisis, Citicorp's atmosphere of internal competition and mistrustfulness, and the theory that a bank with Citicorp's diverse sources of earnings did not need much capital.

Minimum regulatory requirements, the demands of ratings agencies and stockmarket investors have forced Reed to abandon this philosophy. Early this year he declared: "We feel it is important from the stockholders' point of view to strengthen our relative as well as absolute capital positions." Reed's problem is that while Citicorp has made great strides in its absolute capital position – from 3.2% in 1990 to 4.5% with another 25 basis points to come – it has stood still relative to competitors such as Chase Manhattan, which now has 6.5% of tier one capital and Chemical Bank with 7%. It has come a long way and must go as far again.

The issue of capital may be overplayed. According to one Citicorp shareholder: "It is getting ridiculous. The whole banking industry is becoming over-capitalised. But bank chairmen are just following each other like sheep. Citicorp is above the regulatory minimums and as long as it starts bringing in 50 or 60 cents per share each quarter, I do not really care about anything else." But Reed himself said early in 1991: "Over the next two years, we want to become known as a strongly capitalised company."

Citicorp will end 1992 with $10 billion in capital and says it intends to grow this in 1993 by a further $2 billion to $3 billion. It has also said that it hopes to reach a 6.0% to 6.5% tier one ratio by early 1994. The bank is working on asset sales which, if they are all successfully completed will bring in $800 million of after­tax gains. The PERCS deal will bring in a further $550 million, taking Citicorp to $11.35 billion. Apparently, the bank hopes to obtain the remainder through retained earnings after further cost reductions in 1993, which are being planned this month.

That leaves $650 million to be retained to hit the lower end of Reed's target of an extra $2 billion to $3 billion. But to reach a 6% ratio would require $13.2 billion of capital on Citicorp's assets of $220 billion. And Reed has said that the bank will continue to build reserves "independently of the quality of the balance sheet". In 1992 it has been adding roughly $200 million a quarter to reserves.

Although an outsider cannot judge the quality of Citicorp's loan book, there is no reason why it should be of higher quality than those of its peers. And Citicorp' s reserves are lower than at most banks. By the end of September Citicorp's reserves were 25.3% of non-performing assets, compared with 36.1 % at Chase, 47.3% at Chemical and 64.9% at Bankers Trust.

Given those reserve requirements, Citicorp is not going to retain $1.85 billion in earnings next year which it would need to hit 6% on $220 billion assets. To reach 6.5% on present assets implies Citicorp reaching $14.3 billion of capital. The bank does have huge tax loss carry-forwards which it will be able to use as soon as it starts producing real net income and which are difficult to quantify.

Citicorp is trying to dampen any expectation that it will issue a substantial amount of common stock soon, although most of Wall Street assumes a deal will happen in 1993 or 1994. This may be purely tactical. News of a new issue might demoralise existing shareholders, and Citicorp is desperate to keep its stock price up. According to one fund manager at a major shareholder: "I would prefer them not to reinstate the dividend next year and instead retain those earnings, rather than issue more stock."

It seems that a number of outcomes are possible: Citicorp will not meet its targets; will substantially reduce assets; continue to dispose of businesses; issue equity; or some of the above. Meanwhile will its competitors be further strengthening their ratios?

The capital issue casts a shadow over Citicorp's future. There are three obvious and linked dangers. One is that it will simply preoccupy management. Second, Citicorp will have to sell more and more good businesses, depriving itself of future earnings. Finally, while better capitalised competitors will be able to invest in growing existing business or buying new ones, Citicorp will not.

Reed argues with some pride that the bank has fulfilled its "bold and important decision not to sell the family jewels", that it has not made disposals from its core franchises. It has booked good profits by selling off some shares in Latin American companies – Mexican brewer Femsa, for example – which it received in swaps for sovereign loans. But some shareholders were disappointed by the spinning off last year of AMBAC, its credit-insurance subsidiary. Even though capital requirements made this an unsuitable business for a bank to own, one shareholder complains: "Selling one hell of a business like that is not what I call creating shareholder value. And if I could get John Reed on the telephone, I would tell him so."

The bank has considered floating off a part of its credit-card business, which is a cornerstone of its consumer bank. It has just filed a public offering for up to 20% of its Student Loan Corp subsidiary and is also discussing a full or partial sale of that business to Sallie Mae.

According to one shareholder: "The real price the company will pay for neglecting its capital needs is surrendering opportunities not just to Chase and Chemical but to NationsBank, BancOne, BankAmerica which can be flexible in entering new businesses."

This loss of opportunity will coincide with a downturn in the profitability of one of Citicorp's best businesses in the US, credit cards. Citicorp is the market leader, with a high volume, low cost, very profitable operation. In the near term, if the US economy recovers, it will benefit from lower delinquencies. However, increased competition from industrial companies such as AT&T and GM will inevitably contribute to an erosion of margins. What was once a 40% return-on-equity (ROE) business may become a 25%-30% ROE business within a few years.

A distant concern for some shareholders is that Citicorp may have to undergo a more profound operational restructuring. It seems that Citicorp is at a crossroads. Its short-term survival plan is complete. What next?

What Citicorp has, which its rivals lack, is strong international consumer and wholesale banking operations in the developed and the developing world. It is the emerging markets businesses, in countries with strong economic growth and high banking margins which offer the most potential.

Last year, consumer earnings grew 30% in the Asia/Pacific region and by 34% in Latin America compared to 1990. In the first three quarters of 1992, earnings from those regions are ahead by 53% over 1991. In the year to September 30, 1992, Citicorp derived $371 million of net income from consumer banking in the developing world, compared to $310 million of income from consumer banking in Japan, Europe and North America (JENA). Aver­age assets in the developing countries are a fraction of those in JENA. Consumer banking in the developing world is earning well over 2% return on assets, compared to well under 1 % in JENA. Latin America is producing a 50% return on equity and Asia/Pacific around 35%.

Now that Citicorp has given up its weaker European operations, analysts hope that it can sustain 20% annual earnings growth from consumer banking overseas. While cutting costs, the bank has still invested selectively, opening branches in Mexico, Brazil, Japan, Taiwan, South Korea, Australia, Spain and Germany.

Thomas Hanley, analyst at First Boston, estimates that the bank will earn more than $60 million this year in Argentina, Hongkong, Germany and Switzerland; over $40 million from Brazil, Taiwan and Singapore and about $20 million from Australia, Greece, Chile, Indonesia, Canada and Scandinavia. Shareholders are pleased to see Pei-yuan Chia who helped build that international consumer business in the 1980s elevated to the head of all Citicorp's consumer banking.

In global finance, the wholesale side of the bank, Citicorp is also enjoying strong growth in earnings from Latin America and Asia. Earnings for the first three quarters of the year were $507 million, 50% ahead of the same period in 1991. Some of these international wholesale operations are producing a 40% return on equity.

The JENA unit of global finance is less exciting and Reed says that Citicorp is unlikely to grow it. This unit's star is the powerful foreign exchange operation. Citicorp has headed Euromoney's foreign exchange ranking every year since the poll's inception. The loss of some senior personnel in London this year does not seem to have damaged the business too much. In the third-quarter results, Citicorp revealed itself as one of the major winners of the September currency crisis. Forex revenues were $364 million, compared with $193 million in the second quarter.

In the long term, investors must wonder about the risks of operating in emerging markets. How sustainable is the growth and how volatile may the earnings prove to be? The short-term worry for Citicorp is much more tangible: it is the north American real-estate portfolio that Citicorp segregates from its other businesses. Consumer write-offs will decline with economic recovery, but the direction of commercial real-estate values is tougher to predict. Reed says that the real estate problem "will have a fairly long tail, but I do not think that it will destroy the [banking] industry".

At the end of 1991, Citicorp's US commercial real-estate portfolio represented 7.5% of total loans, lower than most of its peers. The figure at Chase was 12.7% and at BankAmerica 14%, for example. It is also well-diversified regionally. But it had lent heavily to large office construction projects.

Citicorp now has $5.9 billion of its total exposure of $17 .9 billion classed as non­performing assets. The non-performing total has been rising slowly this year, while total exposure has been falling. There are some encouraging signs that the decline in US commercial real-estate values has halted for the moment. A degree of liquidity and stability seems to be returning to the market. Buildings are selling.

In March, Citicorp sold the BancOne Centre in Indianapolis for $115 million or 64% of its original $180 million value. In the same month it announced an agreement to sell 1540 Broadway in New York for $119 million or 48% of its original value. Provisions for credit losses have declined from $588 million in the first quarter of 1992, to $431 in the second quarter and $309 million in the third. Net write-offs have fallen from $362 million in the first quarter to $356 million in the second and $234 million in the third.

Citicorp may have put the worst damage from commercial real estate behind it. But it faces a long work-out phase. It does not have the luxury of putting the whole portfolio up for sale, as some better-capitalised banks have done. One danger is that supply coming on to the real-estate market from these banks, the Resolution Trust Corporation and some US insurance companies may cause a second major decline in property values. That coupled with any significant climb in short-term rates may still hurt Citicorp.

One former Citicorp executive is fond of comparing Citicorp to Brazil, not entirely kindly. "Twenty years ago, Brazil was the country of the future and Citicorp was the bank of the future. Today once again, Brazil is the country of the future and Citicorp the bank of the future. And in twenty years time ... "

John Reed – chairman

Citicorp is a larger than life organisation and its chairman more than lives up to that image. John Reed, a short, energetic man, combines boyish charm with high intelligence. One banker close to Reed describes him as "an incredibly brilliant man". He has been a public figure for most of his eight-year tenure. He relished being seen with finance ministers and even prime ministers, and apparently even enjoyed dealing with the press.

Reed has a natural stage presence, an ability to captivate an audience of investors or analysts with effortless brilliance, perhaps an impromptu half­hour lecture on the changing political face of Asia, eastern Europe and Latin America, laced with conspiratorial jokes about whether the Brazilians will repay their overdue interest. "I always feel sorry for Thomas Jones [the company's blunt, British chief financial officer]," says one analyst. "At meetings he gets roasted with tough questions and then Reed arrives and the audience turns into lapdogs." Reed often displayed a wicked sense of humour. When he announced Citicorp' s historic decision in 1987 to reserve heavily against LDC debt, he joked with reporters how he had telephoned other money-centre banks also in trouble as soon as he had made his decision. Many bankers dislike Reed intensely. "If you look back at Citicorp's net earnings since he took over, they are probably zero," says one senior New York banker. "It is extraordinary that he is still there."

Reed has been under immense pressure over the last two years. Although his job looks quite safe, his 53 years are beginning to show behind the mischievous boy's eyes. For two years, he has refused to grant interviews to the press and has been almost in hiding, according to one Citi source.

But Reed is a survivor and a man used to triumphing over adversity. He trained in engineering at Massachusetts Institute of Technology and joined what was then called First National City Bank in 1965 as an operations analyst and strategic planner. Reed made his name by revamping the company's ossified operations department and soon attracted the patronage of Walter Wriston, the then chairman of the bank. In 1969, he was appointed a senior vice-president, the youngest in the bank's history. In the 1970s, he led the drive into consumer banking, investing heavily in automated teller machines and building a credit­card business. He spent a lot of money and made a lot of enemies within the bank in the process but his efforts paid off handsomely.

Today, speculation that he will be replaced has almost completely died down. "Who is the best man to turn round Citicorp? John Reed," says a major shareholder.

As the senior executive in charge of the global consumer bank, Pei-yuan Chia is one of the most powerful members of Citicorp's chairman's office. Chia, like Richard Braddock who was squeezed out by his appointment, came to Citi from General Foods in 1974. At that time, Reed was flooding the bank with outside consumer marketing experts and getting rid of the staid older generation of bankers, who had achieved little with the consumer business.

One of his first tasks was to work on the introduction of automated teller machines in New York, a key initiative to distinguish Citicorp from its rivals. Later he gained experience in Europe while running the bank's consumer business in Belgium. He later controlled the whole international consumer business until 1990.

Chia was born in Hongkong in 1939 to a noted Shanghai banking family and raised in Taiwan, where he took an economics degree from Tunghai University. He later took an MBA from Wharton.

In an internal memo to senior executives this January, John Reed revealed that the bank was about to appoint a new vice­chairman from outside the company to take responsibility for corporate business in Japan, Europe and north America. As news of the imminent arrival spread, a sense of excitement and anticipation grew. When that new vice-chairman was named as Onno Ruding, more than a few people around Citicorp felt distinctly underwhelmed.

Ruding, 53, has a reputation as a runner-up. He was mentioned as a candidate for the top jobs at the International Monetary Fund, the European Bank for Reconstruction and Development and was whispered to be in contention for the chair at recently-merged ABN Amro. He has unkindly been described as the "failed former finance minister of a small country" – he held that position in his native Netherlands from 1982 to 1989. Ruding has responsibility for corporate finance activity worldwide. Citi obviously hopes he will make a significant contribution in Europe.

Perhaps just as important may be his role in reviewing Citi's credit-approval processes. Although Bill Rhodes heads the task force responsible for this, Rhodes is spreading his time a little thinly between the LDC debt and real­estate portfolios. Ruding is apparently taking a leading role. A scholarly, almost ascetic figure, Ruding has a strong banking background: he was joint general manager of Amsterdam Rotterdam Bank (Amro) from 1971 to 1976 and a board member from 1981 to 1982. He joined the Citicorp board in 1990.

Bill Rhodes has been the chief negotiator, not just for Citicorp but for the whole banking industry, during the 10 years of the LDC debt crisis. Starting in 1982, he chaired bank advisory committees for Brazil, Argentina, Uruguay and Peru and co-chaired the Mexico committee. During these often tense and wearying negotiations, Rhodes won the respect of leaders on all sides including politicians and central bankers throughout Latin America and within the US.

Rhodes has recently taken to pontificating on the key banking crisis of the post-1945 era and his role in it. But his work at Citicorp is far from finished. He still retains responsibility for the bank's cross-border portfolio and restructuring sovereign debt. He has been working on the task force to develop a credit culture in the bank. As part of this review, Rhodes and other senior Citi officials have met top credit officers at Bankers Trust, Union Bank of Switzerland and Deutsche Bank, among others. He recently told Citi staff that credit officers should "grant approval only on the merits of the proposed credit and never as an accommodation to the customer or to another approving officer". Rhodes joined Citi in 1957 and spent most of his early career in the Caribbean and Venezuela.

Collins is responsible for bank-wide finance and administration as well as advising on financial and other matters in Europe. Aged 56, he joined Citi in 1961 after taking an MBA at Harvard, and served in the investment management group, including a spell as chief investment officer. He later move to corporate planning and the finance division and was put in charge of the investment bank in 1980. He has been a vice­chairman since 1988 when he was also named senior corporate officer for Europe and the Middle East.