Ever since Francisco Aristeguieta took over from Stephen Bird as Citigroup Asia chief executive in June 2015, he has been talking change and transformation.
Evangelical about digitizing consumer banking and determined to restructure the corporate bank to reflect modern trade patterns and commercial needs, the Venezuelan national has always talked sense. But for most of that time, his take has generally reflected a work in progress, a vision under way but unproven.
Lately, though, the bank’s financials in Asia have started to align in a way that shows what he was aiming for and how far he’s got. After several years of flat performance in the region, much of it pre-dating his arrival, Aristeguieta can now point to five consecutive quarters of growth in Asia Pacific, with every business delivering.
In the third quarter of 2017, the bank delivered $3.75 billion of revenues, up 6% year on year and reflecting an additional nearly $400 million over the course of the year.
Asia is key to the overall Citi story and contributes more to revenue globally than any other part of the world bar North America, typically around a quarter of group revenues. Net income, at $969 million for the third quarter, was up 12% year on year.
Better still, it’s broad-based. Citi globally divides its house into GCB (global consumer banking) and ICG (the institutional clients group); both sides are growing. Third-quarter net income from consumer in Asia was up 15% year on year; institutional, 11%.
What Citi wants you to know above all other things is that, unlike a certain other bank it could mention, its income is broad-based across the region, with no individual country accounting for more than 12% of overall regional earnings.
One can play this argument both ways – given the dynamics of the region, shouldn’t a bank want a higher contribution from China? – but to Citi, it is a differentiator and a point of some pride.
So, fair enough: although the jury is still out on its China revamp, particularly around investment banking, generally Citi has done what it said it would do and grown where it said it would grow. So how did it get here, and what’s next?
Over the course of 2017, Asiamoney has spent several hours with Aristeguieta, and would estimate that a good 60% of that time has been spent talking about consumer banking. It is on this subject that he is most energetic, perhaps because he has seen the greatest capacity for change here – and probably the greatest need for a financial turnaround.
Aristeguieta describes a three-stage transformation in consumer. One is basically about digitizing cards and loans; another, a restructure of how wealth management works, largely replacing broad retail; and the third will be around data.
At the heart of it all is a simple premise.
“The redefinition of our consumer strategy was on the basis of relevance,” he says from his office overlooking central Hong Kong. “Can we be relevant to our target market in 17 different markets? That is the fundamental question we are solving.”
Much has been done on the first two stages.
Today about 37% of the card clients Citi acquires in the region are digital, and 40% of personal loans. Then it’s a question of making the best of that acquisition: simple things, like when a customer makes a larger-than-average purchase on a Citi card, they are contacted through WeChat or WhatsApp or whatever their preferred delivery channel is, and asked if they want to finance it, and if so, over what timeframe. The money goes into the account in seconds without anyone having had to make a phone call.
Citi’s efforts in this area have been characterized for several years now by partnership.
All the solutions we are rolling out have to work in every single market, and we are in 17. I can’t be solving for just one. I have to solve for what is relevant to this target market across the region- Francisco Aristeguieta
All banks have APIs [application program interface, a method of accessing somebody else’s service without leaving your own app or site] these days, but among international banks Citi is the one that has thrown itself in most completely with non-bank partners. Alipay, WeChat, Line, Grab, Lazada; the great and the good of Asia-Pacific e-commerce and social media have all been courted and joined by Citi.
Many of these make a great deal of sense from a marketing perspective and demonstrate practical innovation: being able to pay for a taxi ride on Grab using your credit card loyalty points, for example.
Aristeguieta describes it as making sure that the bank is present in every ecosystem where its clients might be active.
The first question that has to be asked about these initiatives, though, is what it means for the bank financially.
“We are seeing that the behaviour of the digitally acquired client is very different to one that is acquired analogue,” Aristeguieta says. “The engagement and usage are much higher.”
How about profitability and return on equity from digitally acquired clients?
“It tends to be much higher because the acquisition cost is much lower, the activation is faster and the usage is higher.”
The second question is whether relying so much on partners as a mechanism of client acquisition involves some reputational risk, or at least some disconnection from the client. What has been learned along the way?
“The key thing in partnerships is to have a common target market,” says Aristeguieta.
“There are a lot of great applications, but not all serve my target market. We do not deviate from that. We are very disciplined in the boundaries we set ourselves. If you lose discipline over that, your controls are weakened and it is a slippery slope down from there.”
He says no partnerships have been ended. “Some have fostered and grown faster than others. But this is a quest for relevance and therefore we are not limiting the amount [of partnerships]. Ecosystems learn: they are dynamic.”
Retail to wealth
In wealth management, another keystone of Aristeguieta’s approach has been to turn from retail and put those resources to better use in mass affluent.
“One of the key shifts we made two and a half years ago was moving resources away from broad retail to wealth management, realizing that competing with local banks on broad retail is very hard to do in 17 different markets.”
One practical outcome of this has been far fewer branches: 42% fewer than two and a half year ago, he says, with “a little bit to go.”
Instead what the bank has is 69 wealth hubs across Asia, each of them housing between five and 65 relationship managers in an environment that looks more like a trading floor than a bank branch.
Apart from being more closely aligned to how people do business these days – “the reality is 95% of our transactions are not done in branches” – he argues it fosters better outcomes among the bankers too.
“Before, you might have been one of two relationship managers waiting for people to walk into a branch,” he says. “Today, you are with 15, 20 others and all you hear is client conversations, so you are compelled to engage with the client or feel left out.”
“Productivity is getting significantly higher: high teens growth. Client engagement is very powerful.”
The appearance of all this varies from one place to another; in India, for example, it’s called Hello, a platform that can involve phone, video, docusign and all sorts of media, depending on what the client wants to do. But Aristeguieta is clear there needs to be some homogeneity.
“All the solutions we are rolling out have to work in every single market, and we are in 17,” he says. “I can’t be solving for just one. I have to solve for what is relevant to this target market across the region.”
The third phase is data. Citi has 16 million savvy, technology-adopting, affluent, widely travelling customers. In the last year and a half, it has transferred data from 12,000 locations in Asia to what it calls a data lake.
“And what we are doing now is beginning to mine that data for relevancy.”
Central to this drive will be the former eBay chief data officer Zoher Karu, who will be head of Asia Pacific data and analytics in Singapore.
Notably Karu will report to the head of consumer banking, not to a technology department. Again, the use of this data is not likely to be particularly earth-shattering: perhaps, for example, using the knowledge that a customer goes to London three times a year and usually stays in the same place might make them receptive to an offering built around that information.
Also, Aristeguieta believes data can be a method of bringing the consumer and institutional businesses together. “For the first time in a very long time we can see very clearly the benefit of connecting the two very significant, powerful platforms: institutional and consumer.”
Pulling it all together, Aristeguieta feels a sometimes problematic business is now pointing in the right direction.
“We are growing this business by 5% this year, for the first time in a long time,” he says, referring not to full-year numbers but the 5% growth in consumer revenues for the first nine months of 2017. “And the most important thing is that it is truly sustainable growth. All the key drivers are in the right place: new client growth, loan growth, client AuM, digital engagement.”
Asked if this growth reflects revenues or profits, he says both. “The primary objective was always moving the top line. You can always cut expenses, but that doesn’t give you higher returns over time.”
In the institutional and corporate bank, a key appointment was Gerry Keefe, who moved in 2016 from being the bank’s Japan corporate bank head to overall head of corporate banking Asia Pacific.
“When we brought Gerry in, we gave him a mandate to reorganize the corporate bank from a fragmented structure to an integrated corporate bank that allowed us to prioritize content over geography,” Aristeguieta says.
Much of Citi’s institutional side needed little tweaking: it is among the very top tier of cash management and markets houses in Asia and is rarely far from the top when surveys and awards are compiled for flow houses.
But in restructuring the bank, something that was quickly apparent to the two men was the way trade and investment patterns were moving.
“As with consumer, we wanted to move the top line in a sustainable way,” says Aristeguieta. “You want to make sure it is client-led growth. And one thing I learned when asking tough questions two and a half years ago was that, though we had a dominant position in the inbound and outbound flows in and out of Asia, flows within Asia are growing faster still. So we asked: what can we offer there that is different?”
In looking at intra-Asia flows, Citi decided that there were several corridors that deserved focus. Some, like China-Taiwan or China-Hong Kong, are pretty obvious; others, like Korea-Vietnam, Korea-India or Japan-Asean, perhaps less so.
The bank set about redeploying people along those corridors: putting Koreans in Vietnam, for example, if that helped to serve big clients active in that flow.
“It’s not that complex,” Aristeguieta says. “I had people at both ends of those corridors, but we were not connecting them effectively. So we began to move people around, to put Korean colleagues in Vietnam, to serve clients in an integrated way.”
|Francisco Aristeguieta at last year's forum|
Naturally the intra-regional theme also meshes well with China’s Belt and Road Initiative; as Euromoney has reported before, Citi has been redeploying staff and hiring new ones to align with BRI, and is serving clients in 58 of the 65 Belt and Road countries, with a physical presence in 32.
“That will be about M&A, cash management, hedging, moving and protecting capital,” Aristeguieta says, “helping clients get trapped capital out of those countries, advising them on who to partner with, on what project to do first.”
Is it working? Aristeguieta says that corridors are “moving at low teens. Not just volumes – real, incremental revenue.”
Moreover, the Asia institutional and corporate loan book is up 10%, to $64 billion at the end of the third quarter. “All from moving people around and getting the right accountability around the regional network business. Other than that, I didn’t have to change a lot.”
From this, a dig follows. “In a way, this was easy to do because every country matters. No country accounts for more than 12% of my earnings.
“If I’m in a platform where 60% to 70% of my earnings are from one market, moving resources out of that market to benefit a small market is much more challenging.”
This is a reference to HSBC so brazen it might as well have featured the bank’s name in flashing lights. But actually this is the single biggest point of differentiation between the two banks in Asia: Greater China strength versus regional diversity.
Citi, for example, is consistently regarded as the finest foreign bank in India. It is among the best in Korea, very strong in Australia and is by any measure one of the top four banks in Singapore. It has definite diverse strength. HSBC is not the one-note house it is often portrayed to be by competitors, but there is no question it is utterly dominated in Asia by Greater China.
But the other side of that coin is: China is where the money and the growth is. There are worse things to be dominated by than a China business.
So, shouldn’t Citi be stronger in China?
If competitors want to take a pop at Citi in Asia, this is where it happens: the sense that the bank is not as powerful here as it should be, particularly in investment banking. And Aristeguieta says himself that “the last market to reorganize was China”, in terms of getting the corporate and investment bank to work together.
“Getting China right is by far the biggest one [challenge],” he says, referring specifically to investment banking. “We haven’t gotten China right sustainably for a long period of time.”
This has perhaps been a question of approach.
“If you look at our model globally, we are a corporate bank with strong investment banking capabilities,” he says. “The fact that we had them disconnected in China had us at a disadvantage.”
But he suggests this is in the past: “We have connected them, with the right people, and as a result we are having the best year in China in terms of transactions led and volume.”
The person who is tasked with connecting them is Guorong Jiang, who was hired from UBS in June and named head of both the corporate and investment bank in China in September.
In truth, Citi has had a decent year in China investment banking, particularly in equity capital markets, where it has been assisted by having an excellent regional technology team, led by Jan Metzger.
It has been on nine of the 12 China tech IPOs to list in Hong Kong and the US in 2017. Being a key advisor to Alibaba also helped it secure a role on the $7 billion bond issue from the ubiquitous e-commerce player, as well as advising it on the Ant Financial/Moneygram bid.
Citi also served as a joint lead and bookrunner on China’s $2 billion sovereign bond in October (albeit alongside half the industry), the country’s first dollar sovereign since 2004.
“Today, we have a set-up with the country leadership,” Aristeguieta says. “The banking leadership and the team underneath that will lead me to believe that we are uniquely positioned to capture more of that opportunity.”
Will lead? It doesn’t yet?
“We are seeing concrete performance indicators that we are on the right path. I want to see more. But if this year is a first step, it is a very encouraging first step.”
Again, these are comments about investment banking: he sees the general corporate business in China as doing fine.
In investment banking generally, Citi has cemented a position as being a decent house across all fields, if rarely a leader in any of them. Data from Dealogic to late November shows Citi fourth in Apac for investment banking revenue for the year, and sixth for Asia ex-Japan, or fourth among the non-Chinese houses. In volume terms, it ranks second in Asia ex-Japan ECM among the international houses (fifth overall), third in Apac DCM, and seventh in M&A (both ex-Japan and Apac).
It is as Aristeguieta describes it: a world-class corporate bank linked to a good investment bank.
Perhaps the most striking thing about Citi in Asia over the last few months has been the hiring: not just Karu from eBay, but Shinjini Kumar, the head of Paytm Payments Bank, to be head of the consumer bank in India.
Having previously lost Madhur Deora from the India team to be Paytm’s CFO, this felt like a fightback in the name of big banking over fintech.
“Bringing someone from Paytm into Citi: Who would have thought it?” asks Aristeguieta. “That tells me a lot about the credibility they have found in what we are doing.”