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Best Global emerging markets bank: Citi |
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Also nominated: HSBC and Standard Chartered |
Citi has always claimed to be a strong emerging markets player; after all it has a presence in more countries than any other bank. But the numbers always told a different story: over 50% of its earnings came from the US and western Europe. Now that balance is changing – and what that means should not be underestimated.
In the 12 months to the end of March, 65% of Citi’s earnings before taxes came from the emerging markets, compared with 44% a year ago. Other key indicators are also becoming reliant on emerging markets. For example, over the same period 45% of managed revenues were derived from developing countries, compared with 41% the year before. The bank is also attracting more deposits from and making more loans to emerging markets. These trends will accelerate as these countries grow faster than the industrialized nations, at least for the foreseeable future. “One important benchmark is that Citi’s growth is between one-and-a-half and two times faster in the developing part of a region compared with the developed part,” says John Havens, president of the bank.
Another indicator of the importance of emerging markets to Citi is staffing allocation. Half of Citi’s headcount is now on the ground in developing countries, while the bank is pushing hard across all businesses – markets, corporate and investment banking, transaction services and consumer banking.
In consumer banking, for example, Citi has rolled out its technology-based Smart Banking platform in five Asian countries, as well as in eastern Europe with a launch in Romania. The bank has also expanded its global transaction banking services, especially in Latin America and the Middle East. Citi has formed an alliance with First Gulf Bank, for instance, to provide payroll solutions in the UAE.
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“Citi’s growth is between one-and-a-half and two times faster in the developing part of a region compared with the developed part” |
In the institutional clients group, which Havens ran before taking on the president’s role, Citi’s emerging markets franchise is strongest in rates and currencies. But it is investing heavily to bring other products up to speed, such as equities, investment banking, principal finance and commodities. Citi’s trading business now has number one market share in Poland, Israel and on Nasdaq Dubai.
One of the things Citi wants to do is leverage its vast local knowledge to spot the next generation of companies in emerging markets that will become regional and global leaders. In Africa, for example, it has identified 601 firms that are expanding beyond their home markets, providing opportunities across the bank’s businesses.
Another key initiative is the bank’s Citi-for-cities programme. “We believe that 150 cities will have an extraordinary large impact on global GDP. Our strategy is to have an important presence in those metropolitan areas,” says Havens. In practice, the bank hopes to take advantage of opportunities in city administration – be they payroll services, tax collection, monitoring cash needs or raising funds in the capital markets. Success or failure will depend on how well the bank is able to work across divisions.
Breaking down functional silos has been a task in hand ever since Travelers bought Citicorp in 1998. Havens believes the bank is making progress. “I continue to be struck by the intense focus on connecting the bank’s parts to delivering solutions to clients,” he says.
Havens cites the example of a multinational consortium investing $1.8 billion in BTG Pactual of Brazil to highlight his new joined-up Citi. The bank was exclusive financial adviser to the consortium, which included Asian sovereign wealth funds GIC and China Investment Corporation; Ontario Teachers’ Pension Plan Board; Abu Dhabi Investment Council; private equity group JC Flowers; and a number of clients of Citi’s private bank. Citi also provided extensive FX, hedging and GTS custody services.
Another example of what Citi can achieve is in its global subsidiaries group, which provides banking services to the overseas subsidiaries of multinational corporations, especially emerging markets companies. One of its key clients is Huawei. Citi has helped the Chinese telecoms firm expand in Latin America – a key market for Huawei – through providing liquidity management, FX services and back-office support.
Not everything is perfect in Citi’s emerging markets business. It should be doing better in the Latin America region, for example, where it is one of the few firms that can compete with Santander. Citi should also be more competitive in emerging markets M&A, a sector it used to lead but now barely scrapes a top-10 ranking.
At least the bank appears to have learnt from its mistakes. “We’re no longer going to be doing everything for everyone. That’s a bad strategy. That was the old Citi strategy,” says Havens. “Our strategy is to decide where we can have a meaningful impact on clients.”
