In an upbeat presentation,
Citigroup CEO Vikram Pandit told analysts the bank was on track to
return to profitability. But Pandit’s comments related to the
already profitable Citicorp unit, with little information given as
to progress in disposing of assets at its non-core Citi Holdings
unit. Douglas Blakey reports.
In a presentation to
analysts on 11 March, Citigroup CEO Vikram Pandit said the bank was
on track to return to sustained profitability, with losses from
some of its worst assets manageable, provided there was no further
deterioration in the global economy.
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“Citi today is a fundamentally different
company than it was two years ago,” said Pandit, who did not dwell
on the $37bn Citigroup has lost in that two-year period.
While not setting profit targets, Pandit talked
of a return-on-assets goal of 1.25% to 1.5%, up from 1.15% in
fiscal 2009, when the bank’s core Citicorp unit posted net earnings
of $14.7bn.
No timeline was given for such a result but
Pandit said this forecast related to $1.3trn of assets and some
corporate assets at its Citicorp unit; if they grew at a forecast
annual rate of 5%, total assets would be around $1.6trn by 2012
with a 1.25 return equivalent to net earnings of $20bn.
According to Pandit, Citicorp future earnings
would be derived from four major sources: US consumer banking;
retail banking in the emerging markets; cash management and
equities and commodities in the investment bank.
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By GlobalDataIn terms of retail targets, Pandit said: “We
will focus on the 100 metropolitan areas we are present in: 150
metropolitan areas account for 30 per cent of world GDP and that is
our sweet spot.
“The landmark product for the bank’s
international consumer business is CitiGold,” Citi’s mass-affluent
segment rival to HSBC’s hugely successful Premier service.
Only one-third of those metropolitan areas are
in the US, so Citi will focus on growing profits in the emerging
markets, expected to contribute over 55% of revenue growth in the
next three years.
Already, Citicorp’s consumer
banking unit earns almost one half of its revenue from the emerging
markets; in fiscal 2009, Asia and Latin America contributed 23% and
25% respectively of the unit’s managed revenue of $29.4bn (see
pie chart, below right).
“No one can serve clients the way we can. Our
global presence allows us to expand this network of consumer
banking, gathering deposits and generating attractive assets, which
enhance both our funding as well as our returns,” said Pandit.
Pandit was less forthcoming about progress in
selling and winding down $547m of assets within its so called bad
bank division, Citi Holdings.
Though Citi plans to transfer assets worth
around $61m from Citi Holdings to Citicorp in the first quarter,
the remaining $486m of assets in Citi Holdings represents more than
a quarter of total group assets ($1.86trn at the end of fiscal
2009, down from $2.2trn at the start of 2008).
By contrast, the split of deposits is heavily
weighted in favour of Citicorp ($731bn) compared to $92bn within
Citi Holdings at the end of 2009.
Retail units within Spain, Greece, Belgium and
the UK – including the Egg card franchise, bought for £575m ($940m)
only three years ago – continue to reside within Citi’s unwanted
Citi Holdings division.
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 retail loans
(see RBI 619).
Retail operations in Greece together with much
more substantial consumer finance units in Belgium (210 branches)
and Spain (112) were also allocated to Citi Holdings.
While a spokesperson for Citi in the UK told
RBI that Egg was not for sale “at the moment”, a
spokesperson within Citi’s US headquarters confirmed that the UK
retail assets remain within Citi Holdings and on the block.
Egg, which has around 2m customers, reported a
loss of over £100m ($150.1m) in the six months to 30 June 2009.
