Citigroup wins this year’s award for the world’s best bank because of its superior geographic reach and its wide range of products across almost all aspects of financial services. Combined, Citigroup’s mix is unparalleled.
| Sandy Weill | ||||||
In a tough market for financial services providers, that has been a crucial aspect of Citigroup’s ability to service its clients, from retail through to corporates and investors, in a more comprehensive fashion and on a more global basis than any of its peers.
Having one CEO running the overall company helps, too, and it’s now been 15 months since John Reed stepped aside after his battles with co-CEO Sandy Weill became too frequent and too debilitating. This has allowed Weill to exhibit a sharper focus from the top, helped by executive chairman and former US Treasury secretary Robert Rubin. The effects were felt almost immediately in some quarters: Weill quickly shut down Reed’s pet project, loss-making, semi-independent e-commerce outfit e-Citi, instead reincorporating projects back within the relevant business units.
Citigroup also wins for another reason: quite simply, the bank has been less accident-prone than many of its competitors. And for such a Goliath of a firm, that is some feat. There is a constant danger that a company of such size will lose sight of its goals. But Citigroup by and large has avoided the pitfalls, in part, says Lehman Brothers banks analyst Henry Chip Dickson, because it has “an organizational structure and management philosophy that force it to act smaller and be opportunisitc”.
That can be seen, for example, in the way its consumer businesses are organized in the US. Citifinancial, Citibanking North America, mortgage banking and credit cards and insurance are all managed as separate entities and measured against their peers rather than each other.
In the past year Citigroup has showed a renewed commitment to developing its consumer franchise in the US with the $36 billion acquisition of Associates and the $1.6 billion acquisition of European American Bank. That goes hand in hand with the drive to modernize the platform already in place: since the merger Citi has made the banking platform more efficient and more user-friendly.
Add on the International consumer franchise, which accounts for 25% of the global consumer group’s earnings, and Citigroup has one of the most integrated platforms in the one area of financial services that still remains largely fragmented. That gives it a huge advantage over rivals already, and stands Citi in good stead as the market consolidates.
Its more recent acquisition of Mexico’s leading bank, Banacci, adds a unique twist: it increases Citi’s presence in Mexico, but also was bought to help improve Citi’s share of business with Mexicans living in the US.
Analysts such as Dickson now believe that, the economic situation permitting, consumer banking ought to be the major contributor to profits going forward. But the real success story over the last year has continued to be the wholesale banking franchise, across investment bank Salomon Smith Barney, foreign exchange and custody and transactions services.
The credit business has been the most successful, as evidenced by Citi winning our best credit bond house award. Salomon always had a strong fixed-income division, even if it was not always client-focused, and the addition to this of Citibank’s balance sheet and relationships has, after a few false starts in the early months, blossomed. Whether short-term debt, structured products or straight term debt, Salomon is a dominant player in the US, Europe and, through its joint venture with Nikko, in Japan.
And over the past 12 months the bank has consolidated its position. “People are getting much more comfortable with our capabilities,” explains Anne Clarke, managing director in Salomon Smith Barney’s corporate bond division in New York. “As they start to question their historical bond market relationships, they are turming to us more and more often. American Home Products, for example, had never heard from us before, and Kellogg never used to return our calls.” Salomon has lead-managed deals for both these corporates in the past 12 months.
The bank is now bringing its hugely successful foreign exchange operations inside the investment bank, reporting for the first time directly to the head of fixed income. Forex has always been one of Citi’s top businesses, in part because the bank has a physical – and now also a virtual – presence in over 100 countries. Integrating it into the investment bank makes sense, although the inevitable political battles might dent its impact somewhat initially.
Not all is rosy, however, and there have been some problems over the past year. Not the least of these has been the controversy surrounding the acquisition last year of sub-prime lender Associates, leading opponents to accuse Citigroup of wanting to exploit the less well off. The more immediate danger to Citigroup, though, is that it will be clients of Associates who will suffer first if the economic downturn continues. Already, in fact, analysts are factoring in higher non-payment ratios in the credit card division as a result of the acquisition.
In investment banking its non-credit businesses still lag behind, although in Europe the acquisition of Schroders has gone part way to addressing that.
Its transactions services business has also taken a hit, albeit small: the bank decided to consolidate its data-processing centres in Dublin, but has had to decentralise again.
And there is still the question of when the elusive cross-selling opportunities in the consumer group will start to have an impact on customer habits and on the bottom line.
But no bank is ever going to be perfect, and as large an institution as Citigroup has to expect the odd setback.
