US banking major Citigroup announced its 2021 Q1 earnings this past Thursday, April 15th. For some, recently appointed (October 2020) CEO Jane Fraser’s comments reinforced a much-welcomed strategic overhaul by the global banking behemoth: including trimming less profitable business lines and focusing resources on capturing higher margins on newer profit centers, brought about by changing consumer preference in the wake of the pandemic. Much to the appreciation of shareholders, Ms. Frasers bank-wide “reset” will focus Citi resources on wealth management, trading, investment banking, treasury management/ trade solutions, and the continued digitization and automation of the bank’s product offerings and business processes respectively.
The “reset” in Fraser’s words: “Now turning to our strategy. When we spoke in January, I pointed to four principles which we’re using to guide the refresh of our strategy. First, we said we will be clinical in assessing which businesses we can retain or secure leading market positions in. Next, we’re going to be focused by directing resources to high-returning businesses and away from the others. Third, we’re going to be connected so we ensure our businesses fit well together and that they generate synergies. And last, we’re going to be simpler to better serve our clients, fulfill our obligations to our regulators and unlock value for our shareholders.”
The strategy is sound. And its implementation by Fraser suggests her rise to the top of one of the world’s largest consumer banks is well justified.
But not lost in the new strategy are the areas of Citi’s business that it’s cutting loose. Of particular note are 13 retail banking franchises in Asia and EMEA, including Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam. Citi will continue to provide commercial banking in these geographic areas but will only offer retail services via four major regional hubs in Singapore, Hong Kong, the United Arab Emirates and London. This Asian/EMEA hub strategy makes a lot of sense in terms of operational scale and efficiencies and focusing company resources on the most profitable and fastest growing segments of wealth management, treasury management and investment banking.
But does the strategy belie a structural failure of the bank as well? We’re all currently living through a titanic movement in banking and financial services with the systematic conversion to automated processes, digitization of products and services, and data sharing via open banking. The aggregate goal, objectively, is to create operational and consumer-facing efficiencies, and increased accessibility to banking and financial services for a much greater swath of market participants. As a result, it could be argued then that Citi’s retreat from the above-mentioned retail banking areas contradicts its own stated efforts towards increased automation and digitization.
Upon a cursory read of the earning’s transcript, I didn’t see that any analysts questioned Ms. Fraser or Mark Mason, Citi’s CFO on this particular topic. That’s unfortunate as I think its legitimate to ask and have Citi explain how it intends to reconcile its withdrawal from these Asian and EMEA markets with its automation and digitization goals. To be clear, in no way am I suggesting that Citi’s moves here are unjustified. But when you’re a global leader in consumer banking, arguably much more so than investment banking or wealth management, it does seem to be a reasonable question. And from the standpoint of an investment bank who is an exponent for the democratization of financial services and banking, and all the innovative financial technologies and software that comes with it, it’s a question I’d surely like an answer to.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC