Among the first big moves made by Michael Corbat, who took over as CEO of Citigroup in October of 2012, was to announce that the massive international bank would be withdrawing from its consumer banking businesses in Pakistan, Romania, Turkey, Paraguay and Uruguay. There are hints that this expense reduction move--which will save the corporation $1.1 billion annually and cut 11,000 jobs--is not going to end with just these 5 countries. However, the financial institution does not intend this to be a general policy change on a global scale, but rather a specific and targeted cost reduction, so it can focus on those of 40 countries in which its consumer banking operations have the highest potential for growth.
International banking in general is a complex and difficult operation, and consumer banking can be particularly so. The number and variability of regulatory requirements faced by financial institutions in disparate nations can be mind-boggling, and the infrastructure required to manage those regulations is not something that can be readily duplicated from nation to nation.
Of course, offloading such business is also not always easy. To sell one’s consumer banking assets necessarily requires finding a buyer, and that’s harder done than said. Companies such as HBSC Holdings, for instance, have sold many such businesses since 2011, but they have often had to settle for selling prices that were quite a bit less than what they would hope to have received. Still, considering the fact that 2/3 of the countries in which Citigroup does consumer banking business bring in only about $2 billion a year each --tiny compared to the company’s nearly $2 trillion in assets--the benefit of such trimming down seems likely to outweigh the cost, even with low selling prices.
Even Citigroup’s U.S. consumer banking business is not very impressive compared to such American consumer giants as Chase, Bank of America and Wells Fargo. Unfortunately, for tax reasons, Citigroup has to keep those taxable U.S. assets. So for now, the practice of cutting the less profitable of the overseas consumer banking operations is a useful, and fairly painless, way to reduce costs.Add a comment