Industry Research



Industry Research on Keith Karako

February 18,2011

Industry: Asset-Based Lending/ Financial Services/ Banking

Company: Citigroup, Commercial Financial Association

Citigroup

“Citi works tirelessly to serve individuals, communities, institutions and nations. With 200 years of experience meeting the world’s toughest challenges and seizing its greatest opportunities, we strive to create the best outcomes for our clients with financial solutions that are simple, creative and responsible. An institution connecting over 1,000 cities, 160 countries and millions of people, we are your global bank; we are Citi.” Details about Citi are provided below.

Commercial Finance Association

Commercial Finance Association (CFA) is an international trade association dedicated to the asset-based lending and factoring industries that was founded in 1944. CFA has almost 300 member companies and 16 chapters in the United States, Mexico, and Canada. Members include a range of international banks to independent entrepreneurial finance companies. Individuals can only gain CFA membership through organizations, and any employee of a member organization can use the advantages and benefits of CFA membership to be more successful in their careers.

Members include the asset-based lending arms of domestic and foreign commercial banks, small and large independent finance companies, floor plan financing organizations, factoring organizations, and financing subsidiaries of major industrial corporations.  CFA members pride themselves on bringing quality content, valuable contacts and industry expertise to the asset-based financial services and factoring industries.

“The objectives of the Association are to provide through discussion and publication:

• a forum for the consideration of inter- and intra-industry ideas and opportunities.

• to make available current information on legislation and court decisions relating to asset-based financial services.

• to improve legal and operational procedures employed by the industry.

• to furnish information to the general public on the function and significance of the industry in the credit structure of the country.

• to encourage the Association’s Members and their personnel in the performance of their social and community responsibilities.

• to promote through education the sound development of asset-based financial services.”

Asset-Based Lending Industry

The Asset-Based Lending Industry was the first area that Keith Karako joined once he graduated from Penn State. Asset-based lending (ABL) refers to any kind of lending secured by an asset. Basically, if one takes out a loan, in which it is not repaid, ABL industries are the ones who take the asset and gain control of that asset. An example of this is the Mortal Kombat video game series. The creators of the game took out a loan in exchange for the title to the Mortal Kombat series. If they do not repay the loan, then the ABL industry in charge of that asset now owns sole control of the Mortal Kombat series.

Keith Karakeo has a very positive opinion regarding the ABL industry. “I don't know what's going to happen to the industry other than I know it's going to exist and thrive,” said Karako.

Many businesses today are breaking into this industry, and there is a main advantage in doing so. Small companies can often receive cash a lot more quickly than they could from simply taking out a normal bank loan. They are unable to afford their mortgages and need loans in large amounts. However, usually because of credit problems, they cannot take the normal route of lending, which is selling bonds to investors. Therefore, they are forced into having to sign the title of a major company asset over to the ABL industry in return for a large loan. Unfortunately, there are also major disadvantages to these loans. They often come at very high-interest rates, come at a high cost and take a large cut into company profits. Companies need to highly consider and guarantee that they can afford to pay back these loans, or they will risk losing their company’s assets.

Supply Chain Management Industry

No longer a sleepy backwater, trade finance is now a fountain of innovation that is flooding into the global supply chain in ways once unimaginable. The short explanation for this change is that big-time shippers, such as Wal-Mart, Home Depot and Dell, demand maximum leverage from their balance sheets. These companies do not let their capital go dormant in LCs anymore. Instead, they are pushing out expenses and asset holding to their vendors (and their vendors' vendors) and looking to their lead commercial banks to find a way to provide enough operating capital to those vendors to keep the inventory flowing.

Global supply chains, dominated by fewer players on the buy-side, are evolving similarly on the sell-side as the trade giants are looking to capture benefits of scale from their vendors. This is positive for such things as just-in-time sourcing and return on investment. It is also risky, however, because it introduces new potential risks into the equation. When a company is receiving vital parts from a limited number of vendors, it cannot afford to have any of them encounter liquidity or delivery problems that will put its supply in jeopardy.

Citigroup's capacity to work both sides of a supply chain and its ability to serve as a financial intermediary between vendors and buyers provides more detailed knowledge about such things as visibility, procurement processes and credit ratings. "It helps us to know what these buyers are buying and what portions to finance," acknowledges Karako. "We know from a buyer's standpoint who is a good supplier and who isn't."

Citigroup’s aggressive development of vendor financing, important as it is, really only constitutes the beginning stages of what is anticipated to be a gigantic leap in the processes of trade finance. "With end-to-end linkage, we have a good template to offer vendor financing," says a Citigroup spokesperson.

That 'template' has the potential to become refined, as integration between buyers and sellers is increasingly supported by Citigroup’s technological backbone. The plan is to establish the ability to see purchase orders flow, measure vendor operational efficiency against those orders and finally track inventory from outward-bound factory shipments to final possession by the buyer. In order to do this, Citigroup is exploring establishing strategic relationships with global logistics providers to synchronize bank and logistics technology platforms that can provide complete visibility across the physical and financial supply chain.

About Citigroup

Citigroup is in the Financial Services and Banking industries. They’re one of the “Big Four Banks” in America and their headquarters are located in New York City. Citigroup was founded in 1998 when leaders from two of the above industries formed one giant corporation. These two companies were Citicorp from the banking industry and Travelers Group from the financial services industry. Citigroup’s products include consumer, corporate and investment Banking, global wealth management, financial analysis, and private equity.

Citigroup is the world’s largest financial services organization. It reaches out to over 1,000 cities in over 140 countries. It has over 250,000 employees, and holds over 200 million clients. Citigroup breaks down into 12 different brands, each of which specializes in its own personal area, including CitiFinancial, CitiMortgage and Citi Investment Research. Citigroup has a 15-member Board of Directors and 6 different committees, with 6 different charters, each with its own mission statement, duties and responsibilities.

Citigroup lives by four principles which are the key to their success, including: Common Purpose, Responsible Finance, Ingenuity and Leadership. Under Common Purpose, Citigroup states it is, “One team, with one goal: serving our clients and stakeholders.” Responsible Finance states that Citigroup will provide, “Conduct that is transparent, prudent and dependable. Ingenuity affirms that Citigroup is, “Enhancing our clients’ lives through innovation that harnesses the breadth and depth of our information, global network, and world-class products.” Finally, Leadership under Citigroup provides that it has, “Talented people with the best training who thrive in a diverse meritocracy that demands excellence, initiative and courage.

Citi Bank’s Problems Since 2008

Citi was caught up in the housing industry problems that emerged in mid-2008. It nearly failed but received substantial government support. The company has returned to profitability in recent months, but it has had to lay off thousands of employees. However, because of its international presence and importance to international trade, it is expected to do well over the longer term.

Sources

Commercial Finance Association, 2010. Boston. Provided by ProQuest Information and Learning Company.

James, T. 2008. Financial Sense Editorial: Will Citibank Survive?

Jennifer, C. 2011. Citibank Student Loans.



Shister, N. (2005). New Trade Finance Approaches To Secure The Supply Chain.





wiki/Asset-based_lending



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