(C) Citigroup Suffers Hack Attack

Citigroup Inc. (C) has topped the headlines again and this time for a breach of security as hackers got access to hundreds of thousands of its credit card customers’ information in North America.

It was during a routine check up that Citi discovered this unauthorized access. Approximately 1% of its North American credit card customers’ information –– primarily their names, account numbers and email addresses were leaked. However, Citi assured that more crucial information such as social security numbers, date of birth, card expiration dates or card security codes weren’t exposed. In addition, debit card holders’ information were not fiddled with.

Citi has around 21 million credit card customers in North America, according to its 2010 annual report. The customers are being contacted by the company and measures have been taken to avoid any such event in the future.

The Threat…

While social security numbers, birth dates, card expiration dates or card security codes were not exposed, customers are still susceptible to other problems. The extent of client information that has been hacked could be used to gain further financial information by illicit ways.

Companies Targeted

Citi data leakage happened at a time when the market is already tensed with some of the top companies like Google Inc. (GOOG), Lockheed Martin Corp. (LMT), and Sony Corp. (SNE) having already reported a spate of cyber attacks. The most notable was that of the recent security breach at EMC Corp.’s (EMC) RSA unit, which makes SecurID used by banks for corporate networks’ to secure log in.

Such a situation raises concern about the level of protection these companies are providing to their customers. Particularly for a bank, such a breach exposes its clients to huge risk. Thankfully, the regulators are watchful and banks have been asked to enhance their security standards for safeguarding customers’ information.

Our Take

The increased use of technology in the banking system has undoubtedly made the online banking access platform easier and comfortable for customers. But this has also made the system alluring for the hackers. If proper procedures to prevent such breach of security are not implemented, customers would obviously be exposed to substantial risk.

Such incidents dent Citi’s reputation and might even lead to loss of customers to its competitors who could now take advantage of this faulty system at the company. Citi will also have to incur upfront costs for providing the alternative services to the affected clients like replacing their credit cards.

In the cutthroat market and especially in post financial crisis when companies are desperately looking to retain their brand names and opting for several ways to reduce costs, such an incident is definitely uncalled for.

However, we have our faith on Citi’s impressive footprint around the globe. International business is gaining momentum and should support its earnings. Its core business, Citicorp, remains attractive and credit quality trends appear encouraging.

Citi currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.

CITIGROUP INC (C): Free Stock Analysis Report

EMC CORP -MASS (EMC): Free Stock Analysis Report

GOOGLE INC-CL A (GOOG): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

SONY CORP ADR (SNE): Free Stock Analysis Report

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