Citigroup (C) Unit Prospers With Govenment Hand

Citigroup's (NYSE: C) Global Transaction Services (GTS) unit continues to expand with the help of the U.S. government even as the government attempts to restrict the nation's largest banks, according to a report in the Wall Street Journal today.

The GTS unit of Citigroup is the only sophisticated financial institution available in many countries that is available to work with governments, foreign companies and other organizations.

GTS "zaps" more than $3 trillion for hundreds of corporations and many governments and agencies around the world each day, including the Fed according to the Wall Street Journal. The unit converts currencies, processes all passport applications and handles the U.S. military payments made to Iraqi contractors.

The House has recently passed into a bill that would allow the government to breakup big banks that are deemed risky to the overall health of the financial system. However the breakup of GTS may show how complicated the dismantling of these banks may be.

GTS may be too integral to the future success of Citigroup that splitting unit away from the bank may leave some governments and companies in limbo.

The system allows it to be easier for corporate treasurers to manage finances, while many clients of corporate and government agencies outsource a wide range of other finance work to the GTS unit of Citigroup.

At the height of the economic turmoil in 2008, executives from Citigroup told Fed officials that the presence of GTS in over 100 countries made it too dangerous for the government to allow the bank to fail. The second portion of the total $45 billion in bailout funds was partly in recognition of the importance of the GTS unit to the financial system.

This infusion of funds into Citigroup reassured clients of GTS that they would be able to count on the services that it provides.

Revenue from the U.S. government to the GTS unit has more than doubled since mid-2008, making the Fed and Citigroup more reliant on each other than ever before.

The GTS unit accounts for 40 percent of the $800 billion in Citigroup deposits, and has provided a source of consistent low-risk income for the bank during the turbulent economic situation. The unit accounted for nearly half of the $6 billion of profit and 10 percent of the revenue for the bank in the first nine months of 2009.

Shares of Citigroup are up 1.39 percent to $3.64 in early market trading on Monday.

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