Euromoney, April 16 2021, with Elliot Wilson
Jane Fraser’s decision to exit 13 Asian and EMEA retail markets makes sense if the capital is redeployed in better businesses. But has Citi forgotten the power of the Asian consumer and what they will become?
Mike Mayo had a triumphant tone on the Citi earnings call.
The Wells Fargo analyst has been calling for Citi to divest its Asian consumer businesses with such regularity and belligerence that it had become something of a running gag in the industry.
“What are you, 45 days in the job?” he asked Fraser. “I guess you’re not wasting any time.” He would later call it the boldest step since Sandy Weill was CEO.
“I’m going to have to think of new questions,” he added.
Fraser’s bold move, a classic new-CEO-new-broom play, makes perfect sense when viewed through the sharp New York lens of Fraser, Mayo, their peers and Citi’s institutional investors.
From that vantage point, the logic goes like this: Citi lags JPMorgan, Goldman Sachs and other banking leaders on any return metric you like to mention – Citi’s preferred approach is return on invested tangible capital – and something must be done about it.
Most of Citi’s consumer businesses, while decent and sometimes outright successful, hog capital without offering much in return to justify the outlay, this logic continues. No other US bank runs any similar network.
Surely, that capital would be better deployed elsewhere, by bolstering Citi’s considerable progress in Asia in wealth management and institutional, and using the established and well-scaled Hong Kong and Singapore consumer operations as hubs.
Citi revealed numbers to support the view. The 2020 contribution of the 13 exit markets, in aggregate, was $4.2 billion of revenues, $3.3 billion of operating expenses – and zero net income.
Australia, China, India, Indonesia, Vietnam, Taiwan and the others combined brought no profitability at all in 2020. Case closed.
Or is it?
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