How Citigroup Makes Its Money

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Fellow Fools: If you don't know how a company makes its money, you'll probably never be able to properly evaluate it as an investment.

Bearing that less-obvious-than-one-might-think bit of investing wisdom in mind, today we're going to take a look at Citigroup , the country's third largest bank and second biggest wreck after Bank of America to emerge intact from the financial crisis, which makes it a complicated enough potential investment to warrant a deep dive into just how this company generates the enormous revenue it does.

First, a slight detour
A good place to start our investigation is with one of the bank's quarterly reports, which will be chock-full of detailed, relevant information. For the first quarter of 2013, Citi reported total revenue of $20.5 billion including CVA/DVA, and $20.8 billion excluding CVA/DVA.  

CVA stands for Credit Valuation Adjustment, which accounts for the "counterparty credit risk" a bank is exposed to when it comes to its derivative positions. DVA stands for Debt Value Adjustment and accounts for changes in the market value of the fixed-income securities, or debt, the bank has issued.

CVA and DVA are supposed to give investors a truer picture of a bank's finances, but they typically end up just confusing the issue, as different banks report their revenue in different ways at different times, depending on what they think makes their earnings look best. To cut down on confusion, since Citi uses the CVA/DVA inclusive number of $20.5 billion for its first-quarter earnings report, that's the number we'll use, too.

Show me the revenue
Now that we've emerged from that rabbit hole, back to our original question: How was this $20.5 billion in revenue generated? A quick scan of Citi's first-quarter financial supplement reveals the following major revenue streams:

1. Global consumer banking
This is exactly what you think it is: traditional banking. The primary business lines are credit cards, retail banking, mortgage origination, and commercial banking.

For the first quarter of 2013, Citi took in slightly more than $10 billion in revenue in global consumer banking, making this the superbank's top revenue generator. In comparison, JPMorgan Chase generated $11.6 billion for the same quarter and Bank of America generated $9.5 billion. 

2. Securities and banking
This is Citi's corporate and investment banking operation: archetypal Wall Street kinds of moneymakers, including capital services, market-making, and wealth management.

For the first quarter, these lines of business generated $7 billion in revenue for Citi, making it the bank's second highest revenue generator. In comparison, JPMorgan made $10.1 billion in the first quarter from corporate and investment banking.

3. Transaction services
Citi Transaction Services provides cash management, trade, securities, and fund services to multinational corporations, financial institutions, governments, and public sector organizations around the globe. Put simply, transaction services help people and businesses move their money around.

For the first quarter, these services generated $2.6 billion in revenue, making it Citi's third-biggest revenue generator.

4. Citi Holdings
This is Citigroup's "bad bank," where the superbank dumped the most toxic of its assets after the financial crisis. Citi Holdings has at times been less a revenue generator than a loss generator for Citigroup, but for the first quarter, it posted a net revenue gain of $901 million.

They don't call it a superbank for nothing
All of the numbers you see above come from a total of the following four geographical divisions:

  1. North America
  2. EMEA (Europe, Middle East, Africa)
  3. Latin America
  4. Asia

Citi is as big as it is because it has its hands in a little bit of everything, in almost every corner of the globe. This gives the bank a lot of potential to make money, and also a lot of potential to lose focus, make mistakes, and lose money -- which Citi decidedly did in the run-up to the financial crisis.

Now you have a starting point for evaluating Citigroup as an investment. Stay tuned for the next installment in this series: "How Profitable Is Citigroup?" In it, we'll find out how Citi turns this revenue into profit: a subject near and dear to the heart of every investor.

Looking for in-depth analysis on Citi?
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The article How Citigroup Makes Its Money originally appeared on

Fool contributor John Grgurich owns shares of Citigroup and JPMorgan Chase. Follow John's dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich . The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a lovely disclosure policy.

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