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 In 2014 Citi retail executives went from targeting 120 of "the
world's top 150 cities" to homing in on 100 cities where the company
has the greatest scale and potential. As a result, it is withdrawing
from Tokyo, Lima, Panama City, and Houston, for example. In the
United States, it is now focused on six cities, down from 14.
And while the bank has no specific plans to cut more branches in the
near term, it will continue to re-evaluate its holdings, Jonathan
Larsen, who oversees Citigroup’s overseas retail branch business,
told Reuters in an interview.
"We have to make sure that we are not subsidizing marginal
operations for long periods," Larsen said. The bank's strategy will
work with fewer cities, he added.
Cutting back in consumer banking will eat into the group's earnings,
at least in the near term. The bank is expected to book some $800
million of restructuring charges in the fourth quarter when it posts
results on Thursday.
Chief Executive Michael Corbat has announced $2.4 billion of
additional restructuring costs in the last two years. The bank hopes
the spending will eventually save it some $3.4 billion annually.
The charge, in addition to an expected $2.7 billion charge for
litigation, largely involving other businesses, is expected to all
but wipe out Citigroup’s profits for the fourth quarter. Analysts,
on average, expect Citi to earn about 10 cents a share, down from 77
cents a year earlier, according to Thomson Reuters surveys.
The shift underscores Citigroup’s challenge: how to shrink in
locations where it lacks critical mass and yet prevent its global
network from becoming less valuable to customers while it focuses on
fewer cities.
Citigroup prides itself on being the most international of U.S.
banks and closings could hurt the visibility it needs as it
continues to seek business with companies, institutional investors
and governments in more than 100 countries.
The latest cuts came after the company raised its minimum thresholds
for performance and prospects in consumer markets in the past year.
Higher targets are necessary because of increased costs of holding
more capital and complying with additional regulatory requirements,
including anti-money laundering rules, Larsen said.
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LOOSE CONFEDERATION
The company’s global consumer business, which includes branch
banking and credit cards, accounts for half of the company’s revenue
from its core operations. But Citigroup has struggled for years to
make its consumer business more efficient. The group has long
operated as a loose confederation of local franchises, many of which
are not big enough in their individual markets to really be
profitable.
A set of consumer assets that the bank marked for disposal last
October produced a return on assets that was one-eighth the return
of the bank's main assets, according to Citigroup disclosures.
In the United States, the bank decided to quit Dallas and Houston,
where it ranked 24th and 33rd respectively by deposits. That
decision was not easy - when the bank sold Texas branches in
December 2013, it held onto Dallas and Houston, but last year, it
changed its mind. The bank is instead focusing on Miami, Washington,
New York, Chicago, San Francisco and Los Angeles.
Larsen said the closings around the world will allow Citigroup to
put its resources where they can be more productive. He said,
however, that Citigroup will keep branches in Korea, where it has
struggled with regulations on consumer lending and where other
foreign banks, such as HSBC, have given up. Citigroup took a
restructuring charge in mid-2014 last year to close some Korean
branches and now has 127 outlets there. He said Citigroup’s share of
the overall market in Korea is “small,” but is larger among more
affluent individuals.
(Additional reporting by Peter Rudegeair; Editing by Dan Wilchins
and Tomasz Janowski)
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