Once again Citigroup is the winner in cash management, fighting off such rivals as Deutsche Bank, HSBC and Bank of America.
Despite a hiccup for Citigroup in 2001 when Deutsche landed this award on the back of its strong showing in Euromoney’s annual cash management poll, Citi was back on top in 2002 and stays there for another year.
Recognition for its operation comes from market watchers outside Citigroup. As Morgan Stanley’s banking analyst, Henry McVey, wrote in a recent report: “We have spent time reviewing Citi’s transaction services division. We like what we found, and we think that the current management understands that this business can serve as an important differentiator versus traditional Wall Street firms.”
Cash management and treasury is the biggest contributor to Citigroup’s transaction services division, which provides a steady income to the bank. In hard times for investment banking, this income stream is very welcome.
However, Citigroup still has work to do in the US. As McVey points out: “Unlike many of the other custody and treasury businesses that we study, this one derives 70% of its business from outside of the US, essentially the exact opposite of its competition,” says McVey. “Therein lays the opportunity, as we think that Citigroup can enjoy tremendous growth and efficiencies if it can gain more critical mass within the domestic market.”
This point is conceded by Paul Galant, global head of cash management, who says there is room for growth in Citigroup’s domestic market. Citi has long had the strongest international cash management network ahead of competition from such banks as Bank of America, JPMorgan and Deutsche Bank. It has a physical presence in 100 markets. This focus on markets outside the US, and in emerging markets in particular, has given it a strong brand name internationally but it is now looking to address its domestic market.
“The best chance for growth for our business is in North America and western Europe and not just with global clients but also with middle-market clients,” says Galant. This is an interesting point as global cash management banks are liable to be most interested in the top-tier multinationals which are likely to require extra services from their cash manager, such as foreign exchange. These add-on services inevitably mean more fees.
But Galant says: “The middle market is important, the public sector is important to us.” He wants clients from these areas to come to Citigroup, rather than using money managers.
Don’t bet against Citigroup growing its business among a wider client base in the key markets of the US and Europe, particularly as the bank’s senior management increasingly take an interest in cash management’s earnings potential.
“Transaction services, of which cash management is a part, has gone through tremendous change,” says Galant. “Our chairman, Sandy Weill, and our senior management team are seeing the importance of transaction services.” This change has resulted in the division becoming part of the global investment bank, under the leadership of Frank Bisegnano. He in turn has made changes to his team, including putting Sandy Jaffee in charge of forex sales. Galant says this puts transaction services in a healthy position, with a strong team of senior managers.
He adds that this will stand Citigroup in good stead, despite the difficult market conditions. “Falling interest rates are not good for cash management banks, it makes for an additional challenge” he says.
