Citi needs a strategy for Asian consumer banks

Citigroup Inc’s new Chief Executive Jane Fraser is facing an Asia question handed down to her from predecessor Mike Corbat’s time: What to do about the consumer banks?
Out of the 19 that Citi operates globally, 12 are in the Asia-Pacific region. When Corbat took over as CEO in 2012, the unit — which now also includes five smaller consumer banks in Europe, the Middle East and Africa — was pulling in half the firm’s Asia net income. Over the next seven years, the institutional clients group, which houses the corporate and investment banks, powered ahead and became twice as profitable as the stagnant consumer franchise. Some investors began to ask if it was time to exit.
My view then was, “Don’t do it.” It was too early to give up on the Asian consumer. But the pandemic has changed the math. Consumer banking in South Korea, the Philippines, Thailand and Australia is under review. Even in India, where Citi is the largest foreign bank, the retail business might be spun off, according to local media reports.
Covid-19 hit Citi with $17.5 billion in credit losses and allowances, two-thirds of which were in global consumer banking. A $900 million payment erroneously sent to Revlon Inc’s lenders shaved off 0.3 percentage point from last year’s 6.9% overall return on tangible common equity, leaving it woefully short of the 14% return at JPMorgan Chase & Co.
Fraser wants to unlock value by simplifying the firm like “any true Scot,” she says. It’s about time. After a subprime crisis, a pandemic, and years of repair work in between, Citi shares are 55% lower than in September 2008. In the same period, Jamie Dimon at JPMorgan has quadrupled the stock price.
Still, if Citi goes under the knife, it will be more facelift than amputation. The well-heeled among Asian consumers will still remain important to a Citi shorn of consumer banking.
The first woman to lead a major Wall Street institution is planning a big push into wealth management. Asia is Fraser’s best bet. Even HSBC Holdings Plc, which is scaling down its ambitions in North America and continental Europe, is pivoting to the region to grab the same opportunity.
Among “glocals,” or global banks servicing local Asian economies, Citi has a better chance of making it in the post-pandemic landscape than HSBC. (With return on tangible equity down in the dumps at 3%, Standard Chartered Plc isn’t even in the race.) That’s because its access to Asia’s wealthy isn’t restricted to Hong Kong, HSBC’s traditional stronghold and the source of much of its current grief because of China’s incursions into the city’s autonomy.
Citi has pan-Asian heft, garnering about 30% of its revenue in the region from ASEAN nations. Rapid digitization in Southeast Asia was shaking the economics of physical branch networks for all lenders.
—Bloomberg