Awards for Excellence 2015: Best global bank

Best global bank:

Citi

As it emerged from the global financial crisis and sought to rehabilitate itself, Citi, first under the leadership of Virkam Pandit, and since 2012 with Michael Corbat as chief executive, has set out to make the sprawling global financial supermarket assembled by the acquisitive Sandy Weill smaller, simpler, safer and stronger.

That strategy is bearing fruit and the bank has enjoyed a stand-out 12 months, as it progresses beyond balance sheet repair and disposals of rag-bag businesses with no coherent long-term strategic connection towards building a global universal banking model with staying power. 

The bank now boasts capital that far exceeds pre-crisis levels and stands among the strongest in the industry. At the end of the first quarter 2015, its common equity tier 1 capital ratio was 11% and its supplementary leverage ratio was 6.4%. The company passed an important milestone in March when the Federal Reserve raised no objections to capital plans that include a common stock repurchase programme of up to $7.8 billion, as well as an increase of the quarterly dividend from one cent to five cents a share.

That marks an important moment for the bank in two ways: first it allows Citi now to progress with efforts to fine-tune capital with an eye on boosting returns to shareholders. In the first quarter, admittedly a great quarter for the whole industry, Citi offered a tantalizing glimpse of what it might produce with an 11% return on equity. If that doesn’t sound great, remember that the bank is fighting with one arm tied behind its back. From $172 billion of average tangible common equity, $17 billion is tied up against the run down non-core assets remaining inside Citi Holdings and $32 billion in the form of a deferred tax asset (DTA) that does not qualify as regulatory capital and cannot be leveraged into earning assets. 

On the capital it actually puts to work, Citi is earning closer to 13%. Equity investors have taken note. The long-standing discount at which the shares trade to tangible book value has all but closed.

Passing the Comprehensive Capital Analysis and Review, which Citi failed to do in 2014, is also important because it keeps Corbat in his job. Corbat is the kind of chief executive who rolls up his sleeves and gets on with the hard, nitty-gritty unglamorous stuff: taking out legacy IT, putting disparate geographic and product groups onto fewer and better-aligned systems to improve customer service and risk control. But he does not shrink from big decisions: few bigger in the last 12 months than ending Citi’s 100-year history as a retail bank in the world’s third largest economy.

And it’s not just Japan. Citi was a retail bank in 56 countries when Corbat became chief executive. By the end of this year it will be down to 24, and those remaining global consumer businesses will be better connected and monitored, with more coherent product design, pricing and processing. It’s perhaps not the kind of thing that usually wins awards, but it’s vital and deserves recognition.

Some asked last year if Euromoney had been too quick to name UBS best global bank in 2014, but that award recognized a transformation then reaching its peak achievements. It’s worth noting how UBS has progressed since in sharing returns with investors. In 2014 it produced a SFr3.5 billion profit attributable to shareholders, 9% ahead of the previous year and was able to double its dividend payout while still maintaining a 13.4% common equity tier one ratio fully loaded for Basel III and SRB rules, making it a leader among large global banks.

Citi is not quite there yet, but it also deserves recognition, not just for this year’s transformation of the global consumer bank but for the progress of its Institutional Clients Group (ICG) which contains corporate and investment banking, transaction and trade services and private banking. This remains a global powerhouse, delivering all products in all geographies to large multinational corporate, public sector and financial institutional clients. It still operates on the ground in 100 countries, with trading floors in more than 80 countries and clearing and custody networks in over 60 countries. It is climbing the M&A and equity capital markets rankings and priced debt deals last year for issuers from 70 countries across 29 currencies.

With a closed-loop payments network that spans nearly 100 countries, Citi supports over 65,000 clients with integrated cash-management and trade finance and services solutions, handling $3 trillion a day. It’s hard to envisage any bank building a network that might compete as more and more banks retreat to their home regions and give up on global ambitions. In many ways, Citi deserves this award simply because it is the last global universal bank still standing.

It remains to be seen how the competition will respond. The most dangerous will be those banks that make the best use of technology. Keep a close eye on BBVA. The digital transformation of this leading European bank with a strong presence in Latin America continues. Euromoney reports in this month’s banking news section how BBVA is expanding from a base in the southern US towards becoming a truly national US bank. Rather than just opening branches, BBVA is opening loan production offices in the central and northeastern US, while its mobile apps and digital wallet are bring in a flood of retail customers and deposits.