Citigroup adopts careful strategy for banking expansion in China

Image source: Getty Images/Nikkei Asia 

The re-opening of the economy in China has been encouraging several banks in the United States to seek expansion of their business there while dismissing the uneasy relations between the two countries, except for Citigroup, which has opted to choose opportunities with caution, according to a recent report by Nikkei Asia. 

With a long presence in China since 1902 and a reputation of prominence in financial services in Asia, the financial group has been starting to switch strategies in the region by pulling out of retail banking there. 

Citigroup Asia-Pacific chief executive officer Peter Babej said in an interview with the news outlet at his 50th-floors in the Central district of Hong Kong that China gives opportunity for banks with its capital markets, but he clarified that his group will work on its strengths first when it comes to its banking strategies in China. 

Babej added, “We are not going to do anything just because other firms are doing it… Financial services is a business where if you do things because others did them, 90% of the time you’re going to be out of business within the next decade… You need to be very clear about what you can deliver as a firm that is special, and do it prudently at every step. Consistent discipline around this is key to long-term success”. 

The Chinese government has now been allowing with qualifications foreign companies to own in full banks, ventures for securities, mutual funds, life insurance firms, and wealth-managing companies. 

Meanwhile, Goldman Sachs and Beijing Gao Hua Securities have agreed to own fully the unit of securities in China in December, with regulators approving in May the request by the financial giant and the wealth arm of the Industrial & Commercial Bank of China to establish a joint venture for managing wealth, while seeking to reach 600 by 2024. 

Mark Leung, chief executive officer of JPMorgan Chase for China, told Bloomberg Television in June that his company has also applied to control in full its venture of securities there while increasing Chinese staff by as much as 17 per cent annually. 

Having a third-largest amount of assets, Citi has been serving 350 big client companies in China as well as 2,300 “emerging” small companies and 70 per cent of companies from Fortune 500. Both its onshore unit Citi China and over 10 desks in cities such as New York, London, Dubai, and Singapore provide such services to them that include banking for corporations and investments as well as foreign exchange, management of cash, and finance in trade. 

Having been leading the Asia-Pacific unit of Citigroup since October 2019, Babej told Nikkei Asia that the firm now plans to expand such specialties and install underwriting and advisory services in China, with the group having over 4,000 staffers there,  especially in its consumer banking business that it is now leaving. 

A first achievement for a banking group from the United States, the Chinese government granted a domestic fund custody licence that allows for holding securities for funds that are moving into the country, as well as a bond underwriting licence, to Citi. 

Citigroup sold its 33 per cent stake in a joint venture with Orient Securities for banking in Chinese investments in 2019, while seeking to install a business that specializes at first in brokerage and trading futures for equities and products with fixed incomes. 

Members familiar with the plans said last year that the banking group has applied for a licence in securities, with plans to hire 100 staffers for the unit, but Babej was silent on hiring plans or the date of approval for the request. 

Citigroup has surpassed its previous record of raising equity and bonds in 2020 by helping Chinese clients obtain USD 59 billion from global markets this year. 

Babej said, “Our [Asian] investment bank is having a record year to date… We have a strong position in the trade and transactions business and in areas like markets, fixed income and FX in particular”, expecting the financial advantage of the company to help them succeed in managing wealth in Asia, which McKinsey said has USD 34 trillion of personal financial assets onshore, and compete with rival firms such as HSBC Holdings. 

He added, “We have an institutional business, including our commercial bank, that’s very focused on growing with entrepreneurs in Asia… A very significant portion of the wealth generation in Asia comes from entrepreneurial activities”. 

Babej said that the Asia-Pacific unit of Citigroup added net new assets worth USD 5 billion in the first quarter, USD 150 billion on target by 2025, adding that it has already added 650 private bankers and operational staffers in mainly in Hong Kong and Singapore after it announced in April that it would add 2,300. 

He added that Citi announced in April its decision to sell its consumer franchises in Australia, Bahrain, China, India, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam, but it retained its retail banking operations in Hong Kong and Singapore as complement to those in London and Dubai. 

Babej said that the exit from retailing business sharpens its strategy in Asia and lets it work on its advantages, adding, “Asia is critical for Citi, and it is important to have the right strategy”.