Citigroup to Leave Consumer Banking in 5 Countries

Written by Dominique Feldman on . Posted in Business/Finance

Citigroup

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.

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U.S. Real Estate Market Looking Up

Written by Dominique Feldman on . Posted in Business/Finance

Despite the fact that the general economic recovery has been extremely sluggish, and the fear of the Fiscal Cliff and then the Dept Crisis that have clouded many horizons, one bright vista in recent months has been the real estate market.  Not only is that a good thing in and of itself, but it's especially positive news considering that the real estate market was one of the first harbingers of the Great Recession.

The November S & P/Case Shiller composite index, which follows 20 metropolitan areas' housing prices, showed a rise of 0.6% on a seasonally adjusted basis, and an overall price increase of 5.5% year-over-year.  That's the biggest gain since August 2006.  What's mpore, November marked the 10th month in a row that the overall prices in the index rose, which beats out the nine-month run in 2009-2010 when prices were boosted by the homeowner tax credit.

The most impressive rise on the index occurred in Phoenix, which saw a huge 22.8 percent yearly gain in prices, while the single downturner was New York City, which fell a rather mild 1.2% from the previous year.

While this hasn't had much impact on the other markets yet, it is at least a positive mark for an economy that has had far too few such occurrences, especially in real estate, for years.

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CFPB Makes New Rules for Mortgages

Written by Dominique Feldman on . Posted in Business/Finance

The Mortgage Puzzle

In an interview on the Nightly Business Report, Raj Date, the Deputy Director of the Consumer Finance Protection Bureau (CFPB) detailed some new rules on what lenders must ensure in their potential mortgage recipients.  The rules demand that lenders make good faith efforts to ascertain from borrowers the following list of requirements:

That the borrower actually has the ability to repay the loan;

That the borrower has a job;

That the borrow has a certain minimum credit score;

That the borrower has demonstrated the ability to meet monthly payments that include the mortgage, property taxes, and other home expenses.

These requirements, according to Date, are an attempt to develop straightforward, sensible, and consistent criteria for granting mortgages, and are, as he points out, really a return to older, conservative notions of what one needs to be able to demonstrate in order to obtain a mortgage.  This is as opposed to the far-too-loose lending requirements that led to the mortgage crisis in the first place, when banks and speculators, with the encouragement of the federal government, allowed mortgages to individuals who would previously never have qualified.  That practice, combined with international markets buying up American mortgages on the notion that they were a very safe investment, led to overeager lending and the subsequent mortgage crisis.

Of course, following that crisis, mortgages have been hindered by the far-too-strict policies that arose as a consequence.  It was certainly understandable to reel in the enthusiasm after such disastrous effects, but the growth of the mortgage market and the economy as a whole has been slowed by the over-reluctance of lenders to allow mortgages, for fear of further bad debts and uncertain consequences.  Thus, this new set of rules was crafted to give explicit and clear requirements, so that lenders and borrowers can know what to expect, and can be reasonably sure that reckless lending and borrowing will significantly reduced.

Date admits that these are not perfect rules, and there will inevitably be some people who get mortgages who really shouldn’t, and some who would be able to handle one just fine who will have difficulty finding a willing lender.  He makes it clear that the CFPB does not consider this a completed quest, but an ongoing journey to get the best possible lending guidelines for stability and prosperity.  Nevertheless, he considers these rules a definite improvement over both of the previous mortgage situations, one that will hopefully bring more sanity and predictability to the mortgage market.

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AutoNation Thriving In Sour Economy

Written by Dominique Feldman on . Posted in Business/Finance

During a time when the rest of the economy was literally bottoming out, AutoNation was at the top of its game. ‘08-’09 was their “finest hour” because they had incredible operating strength, rooted in long-term strategy. While so many companies are desperately seeking to meet the sales projections of the next quarter, AutoNation was carrying out its carefully crafted strategy with a focus on a 5 to 6 year plan. 

Passing through the doorways in the sleek, modern façade and entering the brightly-lit, spacious, and stylishly-furnished showroom of the Maroone Chevrolet of Fort Lauderdale dealership, immediately one recognizes the company’s prosperity, and gets a clear understanding of why AutoNation is the only investment grade rated public automotive retailer. As I walked in and prepared for the forthcoming interview, I was immediately greeted by courteous and professional sales staff, who were impeccably dressed in business wear emblazoned with the brand logo.

It was reminiscent of the 1950’s era, when service station attendants would run out the instant you pulled in. Taking a seat in the very comfortable customer lounge, one of the first things you realize is that there are no walls between you and the extensive, yet visually arresting, inventory. This recently-renovated dealership, along with its sister AutoNation facilities across the country, was a revelation and reassurance to the retail automotive industry. In that open and relaxing lounge, I had the opportunity to speak with the men who are mainly responsible for that prosperity.

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