Emerging markets Best bank: Citigroup

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Euromoney Awards for Excellence 2006

Emerging markets Best bank I Emerging Markets Best investment bank I Emerging Markets Best debt house I Emerging Markets Best equity house I Emerging Markets Best M&A house

But sheer size can sometimes be a handicap, as Citigroup knows only too well. What really distinguishes the institution is its ability to effectively link its retail and corporate banking machines with its investment banking franchise. The only global rival to Citigroup in this respect is HSBC, but the latter’s investment banking capabilities, though improving, are a notch or two behind.

Michael Klein: Citigroup is in position to serve the new centres of wealth

Citigroup has one of the best investment banking operations in the emerging markets. Its debt business is among the very best and its M&A franchise is not far behind. The US institution is also a market leader in microfinance, cash management and project finance. Its two areas of relative weakness are credit derivatives and equities. In the former it trails Deutsche Bank, while in equities UBS, Credit Suisse and Morgan Stanley are more successful. However, Citigroup is turning its attention to these products and, arguably, it’s only a matter of time before it becomes more competitive. In equities, for example, the bank has built its distribution platform in India and is beginning to win its fair share of business. It is now doing the same in Brazil.

Michael Klein, CEO of global banking, says that the emerging markets are central to Citigroup’s fortunes. He says the bank is implementing a strategy that will benefit from the recent growth in emerging economies – growth that is expected to outpace that of the western world in the years to come. “Citigroup must be positioned to serve these new centres of wealth,” he says. “It is imperative to build embedded local footprints in these emerging economies and to connect them with the developed markets. We have been aggressively doing both.”

Citigroup is now reaping the benefits of two big recent acquisitions in the emerging markets – Mexico’s Banamex in 2001 and Korea’s KorAm Bank in 2004. Last year Banamex contributed a remarkable $1.926 billion to the bank’s bottom line, mainly through its consumer banking business. KorAm’s net income was a much smaller but still respectable $455 million. One fruitful business line is SMEs, a sector that Citigroup is increasingly focused on, according to Suneel Bakhshi, head of emerging markets corporate banking. In a notoriously difficult market for foreign investors, Citigroup’s integration of KorAm has proved to be much smoother than Standard Chartered’s acquisition of Korea First Bank. Today, Citigroup is the biggest foreign financial institution in Korea, with $44.8 billion of total assets. KorAm, in turn, is Citigroup’s biggest franchise in Asia.

The bank’s attention is now focused on China. It already has a 4.6% stake in Shanghai Pudong Development Bank, which it hopes to increase to 19.9%. Citigroup was also leading a consortium that includes Carlyle Group in a $3 billion bid for an 85% stake in Guangdong Development Bank. Citigroup was seeking a 40% stake for itself even though Chinese law stipulates that no single foreign investor is allowed more than a 20% stake in a local company. In May, though, the bank failed in its quest after the China Banking Regulatory Commission refused to grant an exemption and override the law. However, it did say that the bank could restructure its consortium’s bid. Citigroup needs to make its China strategy work. HSBC has stolen a march in the country, especially in the credit cards business following its investment in Bank of Communications in 2004. Citigroup is pursuing a different strategy to its UK rival by focusing on mid-sized regional lenders rather than the big five national players.

Another region in which Citigroup could make an investment is central and eastern Europe. European wholesale banks such as RZB, UniCredit, Erste Bank and Société Générale have a much bigger presence in the fast-growing retail market. It seems that Citigroup’s management is keen to fight back. Earlier this year it tried to buy Turkey’s Finansbank but was left frustrated by the National Bank of Greece, which paid a hefty $2.7 billion for a 46% stake. There are rumours that Citigroup has now turned its attention to Turkey’s second-biggest private bank, Akbank.

Emerging markets Best bank I Emerging Markets Best investment bank I Emerging Markets Best debt house I Emerging Markets Best equity house I Emerging Markets Best M&A house