Retail banking markets in Pakistan, Romania, Turkey,
Russia and Egypt represent better growth prospects than Spain,
Greece, Belgium or the UK, according to the latest strategy update
from Citigroup. The pronouncements form part of its ongoing,
controlled split into ‘good bank’ Citicorp, which will become the
‘new’ Citigroup, and ‘bad bank’ Citi Holdings, which is being
slowly sold or wound down.
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The severity of the retrenchment is
highlighted by the fact that even its UK retail banking operation –
including the Egg card franchise, bought for £575 million ($940
million) only two years ago – is now up for sale.
But while Citigroup is pulling out of western
Europe in a very big way, it has also announced ambitious plans to
grow its retail banking operations in Australia.
It has signed a ten-year agreement with the
Australian unit of Virgin Money, the financial services arm of the
UK Virgin conglomerate, to deliver an expanded range of
Virgin-branded banking services to the Australian market by
mid-2010 including credit cards, online savings and deposit
accounts.
A spokesperson for Virgin told RBI:
“Citi were chosen because they have the appetite to continue to
grow in the Australian market – they are currently the
fifth-largest credit card issuer, with an aspiration to be third.
They have the ability to offer the full breadth of retail banking
products, including deposits and current accounts. [And] they have
a strong operational capability as well as a robust local balance
sheet and profitability.”
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By GlobalData
Citi would not comment on speculation that
Virgin, which has made no secret of plans to expand its UK retail
banking business, might acquire the Egg portfolio.
A Virgin spokesman told RBI: “We’re
actively looking at the market but remain on the sidelines for the
moment.”
In 2008, Citigroup was pilloried in the UK
press and parliament following Egg’s controversial cull of 7
percent of its credit card customers, around 161,000 cardholders,
on the basis that the segment was a poor credit risk.
One leading bank analyst told RBI:
“It is hard to see who might want Egg. You can exclude the banks in
which the UK government has taken a stake and I cannot see HSBC
wanting it. Barclays might look at it, if it was priced
aggressively – after all it snapped up Goldfish which had a
chequered history.”
Too small and
insufficient
International retail operations that
Citigroup has concluded are too small or cannot generate sufficient
deposits include Norway, Denmark and Finland, where the bank has
already ceased to offer consumer finance loans.
Retail operations in Greece together
with much more substantial consumer finance units in Belgium (210
branches) and Spain (112) have also been allocated to Citi
Holdings. Citigroup has already withdrawn from Germany via the $7.7
billion sale of its profitable retail operation to France’s Credit
Mutuel last October (see RBI
596).
In contrast, Citicorp’s European, the Middle
Eastern and African (EMEA) unit will now focus wholly on emerging
economies – specifically Poland, Russia, Turkey, Czech Republic,
Hungary, Romania, the United Arab Emirates, Bahrain, Egypt and
Pakistan.
Citi Holding’s sales or closures also include
consumer finance businesses in South Korea and India, in particular
the bank’s CitiFinancial branded operations.
It has already struck deals to dispose of
Nikko Cordial Securities and Nikko Asset Management in Japan, while
in the US, retail assets on the block or in run-off mode include
credit card books for retailers Sears and Macy’s.
Competition in Australia
Citigroup has successfully expanded
its deposit base in Australia across 2009 by A$500 million ($437
million), principally term deposits.
Its bricks-and-mortar retail
presence in Australia is centred on 11 Citigold-branded branches,
the bank’s mass affluent brand targeted at individuals with liquid
savings or investments of at least A$100,000.
But Citi believes the Virgin tie-up can help
it grow its credit card customer numbers in the country by 500,000
in the medium term and has in its sights National Australia Bank’s
(NAB) fourth-place ranking by market share in the cards sector.
According to Roy Gori, CEO of Citi’s
Australian retail unit, the alliance with Virgin signals the
re-emergence of competition in Australia’s concentrated retail
banking sector.
The parties are also looking to roll out a
Virgin Blue credit card, offering reward points for the budget
airline of the same name, to compete with Qantas-associated credit
cards.
In addition, Citi plans to develop
Virgin-branded mortgages to challenge the Big Four – Commonwealth
Bank of Australia, Westpac, NAB and ANZ – which dominate the home
loans market with a combined market share of around 90 percent.
North America, Asia will
dominate
Retail deposits in Citicorp – the
‘good’ half – amounted to $274 billion at the end of the first half
of 2009, of which the EMEA region contributed only 3 percent, out
of a total deposits figure of $702 billion for Citicorp.
North America (at 51 percent of
retail Citicorp deposits) and Asia (33 percent) will dominate
Citi’s scaled-down retail operations, with Latin America accounting
for the remaining 13 percent.
The comprehensive and complex rearrangement of
Citigroup into Citicorp and Citi Holdings is largely about
offloading bad assets from the balance sheet.
By the end of the second quarter, Citigroup
had shrunk its total assets to $1.8 trillion ($985 billion and $649
billion in Citicorp and Citi Holdings, respectively) from a high of
$2.3 trillion.
By contrast, the split of deposits is heavily
weighted in favour of Citicorp ($702 billion) compared with $88
billion of deposits assigned to Citi Holdings.
In Citigroup’s core domestic US market, the
plan centres around refocusing retail banking on a handful of major
core urban markets, including New York, Miami, Los Angeles and
Chicago, and catering primarily to affluent customers.
Its domestic branch network, at 1,000
branches, now pales in comparison to the true giants of US retail
banking: Wells Fargo (10,455 outlets, including ‘stores’), Bank of
America (6,139) and JPMorgan Chase (5,474).
