ONCE dubbed a “global financial supermarket,” Citigroup reorganized to focus more intentionally on divesting businesses that no longer fit the global characteristics of its portfolio.
“There was logic in some parts, but I think we went too far trying to be everything to everyone and we took the consequences,” Citi Asia CEO Peter Babej told AFP. The Edge.
Although not yet finalized, its most recent divestments concern its 13 consumer businesses in EMEA (Europe, Middle East and Africa) and Asia, including Malaysia.
According to its presentation of 1Q2022 results, the banking group has so far signed agreements for the disposal of nine consumer businesses: in Australia, Bahrain, India, Indonesia, Malaysia, Thailand, Vietnam, Taiwan and in the Philippines.
The divestment of its consumer businesses is still ongoing, with some expected to be completed this year, but the bulk of them will be completed in 2023.
Babej acknowledges that the decision to exit the consumer business market was difficult for the banking group, as these businesses were among those that had excelled over the years. “If you think about the decision to exit some of our consumer businesses, it was driven by the recognition that our global network is our key strategic differentiator.
“The consumer businesses we’re divesting are phenomenal franchises, but our global nature doesn’t give us a natural advantage for long-term investing. We had to be honest and clinical about this because we have to do the right thing for our shareholders and the franchises themselves.
If he did not specify in what the banking group will invest with the proceeds from the sale of its consumer activities, he underlines that he is not seeking to invest in new business segments or to acquire companies. Instead, the plan revolves around investing in its existing business where there are “massive growth opportunities”. “The key is to provide differentiated and holistic support to customers who benefit from our globality, and to invest our resources in furthering this mission,” he said.
The Asia-Pacific CEO believes the banking group has more upside in tying businesses even more tightly than it has managed to do so far.
When asked whether divesting its consumer business will cause a temporary drop in revenue, Babej points out that it depends on how quickly the banking group successfully reinvests the proceeds from the sale.
In 2021, Citi’s revenue fell 5% to US$71.9 billion, partly due to the loss from the sale of its consumer business in Australia. However, it reported a net profit of US$22 billion, double the US$11 billion it made in 2020, thanks to the lower cost of credit.
“From our perspective, losing revenue is completely acceptable. It’s not about revenue, it’s about return on equity,” he says.
“We have significant high-yield reinvestment opportunities in our institutional and wealth management businesses across Asia. Our priority is to support customers in these areas, which will drive franchise growth as well as excess return on capital for shareholders. »
Babej points out that the banking group does not adopt a quarterly vision of the obligation to deliver a certain amount of income. Instead, it takes a strategic view of where it will actually deploy its capital, which seeks to see what will result in the growth of its Asian business.
Citi’s global business segments include Services (Treasury and Trade Solutions as well as Securities Services), Fixed Income, Banking (Investment Banking, Corporate Banking and Commercial Banking), wealth management and retail banking services in the United States.
His mission in Asia
Babej took on the role of Asia-Pacific CEO in 2019, just before the Covid-19 pandemic. After leading the banking group’s operations in the region through the difficult years of 2020/21, he remains excited about the growth prospects in Asia.
Asia presents a huge opportunity as it offers a massive growth engine for the banking group, he said, adding that it is important to seize opportunities in the region “rightly”. Asia contributed about a fifth of Citi Group’s revenue in 2021, while its institutional client base in the region accounted for a fifth of its net income.
The huge opportunities come from the different economies and populations of Asia, which consist of huge emerging markets and some developed markets.
“Asia has an excellent overall growth profile, with diversified momentum across the region. For a bank to cover Asia in the right way, which we do, you cannot approach the region as a monolith – you must cover local dynamics and do justice to Malaysia’s specific needs and trends in relation to to Indonesia versus China versus India, for example. They are very different,” explains Babej.
Because Citi has been in Asia for 120 years, it has an understanding of local markets, which is very different from some of its competitors, he points out.
Certainly, because of the size of their population and their economies themselves, some Asian countries naturally present more opportunities for the banking group than others. But the group’s approach to the region is not to be overly dependent on any one country.
“As the global environment changes – and the two years have brought huge changes – the value we deliver to our clients isn’t that ‘we’re great in this country’, it’s that we can advise them. across the region and around the world through our network of over 160 markets. If you look at our business mix, we are less concentrated in a particular geographic area in Asia than our competitors,” says Babej.
Citi believes that its most differentiating characteristic is its comprehensiveness. Therefore, this gives him a natural advantage when it comes to serving clients where comprehensiveness matters.
Babej describes Malaysia’s economy as an attractive economy with great talent, an entrepreneurial spirit and global customers, making it an investment destination full of opportunities.
“Malaysia is very well positioned as an attractive market for foreign investment, a market where some of the leading companies and emerging entrepreneurial companies have strong global prospects. When you look at the global investment landscape, I think there is a significant upside to giving Malaysia the extra exposure it deserves,” he said.
Highest level of uncertainty
As Covid-19 fears have largely subsided, countries around the world are reopening their borders and imposing less stringent travel measures. However, new concerns have emerged on the geopolitical front, as the war in Ukraine has lasted more than three months since Russia invaded the country in February.
As Citi manages these risks, the range of risks — for which it must position itself and deal with its customers — has changed dramatically, Babej says.
“In an environment like this, with an unprecedented pandemic followed by an unprecedented geopolitical situation since World War II, the spectrum of risks to think about is much broader,” he said.
“So when we look at what it will take for our customers and ourselves to manage some of the scenarios, it takes a lot of thought. We do this with a full global perspective, and it’s another opportunity to support our customers in a very differentiated way.
Although Babej views the current challenging environment as one with the “highest level of uncertainty he has seen in a long time”, he believes it creates significant opportunities for institutions like Citi due to its expertise in global risk management.
The various issues, such as rising interest rates, that have arisen from the pandemic and further compounded by geopolitical issues may actually be positive for some parts of Citi’s business, Babej says, noting that rising interest rates interest has favorable winds for the banking group.
“In and of themselves – setting aside macro growth challenges and inflationary risk – rate hikes have a positive impact on many of our spread-based businesses, such as treasury and trading. That said, our strategic focus is to increase wallet share with clients by leveraging our unique global network across interest rate cycles,” he adds.