Drip Portfolio Report
Citicorp Business Lines
by Dale Wettlaufer (DaleW@fool.com)


Alexandria, VA (June 23, 1998) --We continue with our look at Citicorp (NYSE: CCI) today, despite our receiving a note that the company is at least temporarily suspending its DRIP program while working through what should prove to be a long completion process of its planned merger with Travelers Group (NYSE: TRV). We looked at that merger earlier this year in a three-part series (Part 1, Part 2, Part 3).

In the end, we'll hope that the new company, Citigroup, has the grace to offer investors a full dividend reinvestment plan without fees. So if Citicorp proves to be our favorite financial company, we'll wait and see what its new DRIP entails. We'll invest in our number two choice if Citigroup decides not to a offer a favorable DRIP or any DRIP at all.

Before we get into the minutiae of what Citicorp is, we need to first understand that it's a wholesale bank with impeccable retail bank credentials. There is perhaps no other bank in the world with the brand name recognition of Citicorp, which aids the company in a number of ways. First, when it enters a new market, the Citicorp name acts as a very heavy crowbar for gaining market share. That's because the company can attract commercial banking business from large to small, all of which Citicorp can handle; and of course the name also attracts consumer accounts. Those consumers can be private banking customers, plain mortgage borrowers, or credit card borrowers.

In the U.S., the brand name doesn't hurt the company, either. Being the largest credit card lender in the country, Citicorp doesn't need a brand presence throughout the U.S. to gain a nationwide customer base. The company has the resources to advertise and market on a wide scale, taking advantage of mass media to build its brand effectively. In addition to its massive wholesale banking operations and international presence, plus its diversification if the Travelers Group merger goes through, the company provides an attractive investment possibility for DRIPpers to investigate.

Major Sources of Earnings

Perhaps it's easiest to lay out in table form where Citicorp's revenues and earnings come from.

Global Consumer Banking revenues reached $14.1 billion in 1997. The breakdown on revenues and loans by region is as follows:

North America� Revenues: $8.0 billion, 56.7% of total. Loans: $87.8 billion
Europe... Revenues: $2.0 billion, 14.2% of total. Loans: $16.7 billlion
Latin America� Revenues: $1.7 billion, 12.1% of total. Loans: $9.3 billion
Central & Eastern Europe, Middle East, Africa� Revenues: $0.3 billion, 2.1% of total. Loans: $1.4 billion
Asia/Pacific� Revenues: $2.1 billion, 14.9% of total. Loans: $23.2 billion

Global Consumer Banking Income, Before Restructuring Charges: $1.904 billion, ROA =1.44%

Citibank's credit card business is extremely important to the overall company's results. Of total consumer revenues of $14.1 billion last year, the consumer card business accounted for about half that and around 43% of net income before restructuring charges. However, this part of the business uses less resources than others, even if margins are smaller. ROA, which is more important than margins because it measures capital productivity before leverage is applied, came in at 2.65% for the company's card business in 1997.

In corporate banking, the company has a similarly diverse breakdown of revenues by geography:

North America� 33%
Europe, Japan� 20%
Central/Eastern Europe, Middle East, and Africa�10%
Asia Pacific�16%
Latin America�21%

By line of business, corporate banking revenues break down as follows:

Transaction Services� 28%
Capital Markets/Corporate Finance�19%
Venture Capital� 9%
Securities Transactions/Other� 8%
Loan Products�14%
Trading� 22%

Corporate Banking Income, Before Restructuring Charges: $2.558 billion. ROA = 1.66%

Notice that many of these are high velocity (asset turnover) activities with good margins and thus good ROAs. In growing economies, the company can generate a good deal of operating leverage (measured as a change in operating profits divided by a change in revenues -- the higher, the better the operating leverage) in lines of business such as credit card transaction processing.

Tomorrow, we'll look at credit loss trends among the various business lines and more at the wholesale banking units.

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6/23 Close

Stock Close Change CPB $53 9/16 + 1/8 INTC $75 1/4 + 1 3/8 JNJ $76 3/8 + 1 5/8
Day Month Year History Drip 1.46% 4.63% 5.87% (9.84%) S&P 500 1.48% 2.63% 15.36% 17.68% Nasdaq 2.14% 3.69% 17.46% 15.73% Last Rec'd Total # Security In At Current 05/29/98 2.269 CPB $54.513 $53.563 05/01/98 9.380 INTC $80.487 $75.250 05/07/98 5.099 JNJ $69.154 $76.375 Last Rec'd Total# Security In At Value Change 05/29/98 2.269 CPB $123.69 $121.53 ($2.16) 05/01/98 9.380 INTC $754.94 $705.82 ($49.12) 05/07/98 5.099 JNJ $352.62 $389.44 $36.82 Base: $1600.00 Cash: $316.39** Total: $1533.18

The Drip Portfolio has been divided into 68.021 shares with an average purchase price of $23.522 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress: 5/22/98: Sent $30 to buy more JNJ.