This article first appeared in The Edge Malaysia Weekly on July 4, 2022 - July 10, 2022

ONCE branded as the “global financial supermarket”, Citigroup has revamped itself to be more intentionally focused by divesting businesses that no longer fit the global characteristics of its portfolio.

“There was logic to parts of it, but I think we went too far trying to be everything to everyone and we drew the consequences,” Citi Asia’s CEO Peter Babej tells The Edge.

Although yet to be completed, its most recent disposals were its 13 consumer businesses in EMEA (Europe, the Middle East and Africa) and Asia, including Malaysia.

According to its 1Q2022 earnings results presentation, the banking group has signed deals for the disposal of nine consumer businesses to date: in Australia, Bahrain, India, Indonesia, Malaysia, Thailand, Vietnam, Taiwan and the Philippines.

The divestment of its consumer businesses is still a work in progress, with some expected to see completion this year, but the bulk of them will be in 2023.

Babej acknowledges that the decision to exit the consumer business market was a difficult one for the banking group as those businesses were among those that had excelled over the years. “If you think about the decision to exit some of our consumer businesses, it was driven by recognising that our global network is our key strategic differentiator.

“The consumer businesses we are divesting are phenomenal franchises, but our globality does not give us a natural edge to invest for the long term. We had to be honest and clinical about it because we need to do the right thing for our shareholders and the franchises themselves.”

While he did not specify what the banking group will invest in with the proceeds from selling off its consumer businesses, he emphasises that it is not looking to invest in new business segments or to acquire companies. Instead, the plan revolves around investing in its existing businesses where there are “massive growth opportunities”. “The key is to deliver differentiated, holistic support to clients who benefit from our globality, and to invest our resources to advance that mission,” he says.

The Asia-Pacific CEO believes there is more upside for the banking group to knit the businesses together even more closely than it has managed to accomplish so far.

When pressed on whether the divestment of its consumer businesses will result in a temporary dip in revenue, Babej stresses that it depends on how quickly the banking group successfully reinvests the sale proceeds.

In 2021, Citi’s revenue fell 5% to US$71.9 billion, partly due to the loss from the divestment of its consumer business in Australia. However, it reported a net income of US$22 billion, double the US$11 billion achieved in 2020, driven by lower cost of credit.

“From our perspective, losing some revenue is totally fine. It’s not about revenue, but return on equity,” he says.

“We have significant, high-return reinvestment opportunities in our institutional and wealth businesses across Asia. Our priority is to support clients in these areas, which will drive further franchise growth as well as excess capital return to shareholders.”

Babej emphasises that the banking group is not taking a quarter-on-quarter view of having to deliver a certain amount of revenue. Instead, it is taking a strategic view of where it will actually deploy its capital, which is looking to see what will translate into the growth of its Asian business.

Citi’s global business segments comprise services (treasury and trade solutions as well as securities services), fixed income, banking (investment banking, corporate banking and commercial banking), wealth management and US personal banking.

Babej assumed the role of Asia-Pacific CEO in 2019, just before the Covid-19 pandemic. Having navigated the banking group’s operations in the region through the tough years of 2020/21, he remains excited about the growth prospects in Asia.

Asia presents a huge opportunity as it offers a massive growth driver to the banking group, he says, adding that it is important to get the opportunities in the region “right”. Asia contributed about a fifth to Citi’s group revenue in 2021, while its institutional client group in the region made up a fifth of its net income.

The huge opportunities come from the various economies and populations in Asia, which consist of huge emerging markets and some developed markets.

“Asia has an excellent overall growth profile, with diversified dynamics across the region. For a bank to cover Asia the right way, which we are doing, you can’t approach the region as a monolith — you have to cover the dynamics locally and do justice to the specific needs and trends of Malaysia versus Indonesia versus China versus India, for example. They’re very different,” says Babej.

As Citi has been in Asia for 120 years, it has an understanding of the local markets, which is something very different from some of its competitors, he points out.

Admittedly, due to the sheer size of their populations and the economies themselves, there are some countries in Asia that naturally present greater opportunities for the banking group than others. But the group’s approach to the region is not to be overly reliant on any one country.

“As the global environment changes — and the two years have brought enormous change — the value we deliver to our clients is not that ‘we’re great in this country’, it is that we can advise them across the region and globally across our network of over 160 markets. If you look at our business mix, we are less concentrated in any particular geography in Asia than our competitors,” says Babej.

Citi believes that its most differentiating characteristic is its globality. Hence, this gives it a natural edge when serving customers where globality matters.

Babej describes Malaysia’s economy as an attractive one with great talent, entrepreneurship and global clients, making it an investment destination that is ripe with opportunities.

“Malaysia is very well positioned in terms of being an attractive market for foreign investment, a market where some of the leading corporates and emerging entrepreneurial businesses have strong global prospects. When you look at the global investment landscape, I think there is significant upside in getting Malaysia the further visibility that it deserves,” he says.

As fears related to Covid-19 have largely subsided, countries around the world are reopening their borders and imposing less stringent measures on travel. However, new concerns have emerged on the geopolitical front with the war in Ukraine having stretched more than three months since Russia invaded the country in February.

While Citi has been managing these risks, the spectrum of the risks — for which it has to position itself and its clients to contend with — has changed dramatically, says Babej.

“In an environment like this, with an unprecedented pandemic followed by a geopolitical situation unlike anything since World War II, the spectrum of risks that you have to think about is much broader,” he points out.

“So, when we look at what it is going to take for our clients and ourselves to manage some of the scenarios, that requires a lot of thinking. We’re doing that with a full global perspective, and this is another opportunity to support our clients in a very differentiated way.”

Although Babej views the current challenging environment as one with the “highest level of uncertainty it has seen in a long time”, he believes that it creates significant opportunities for institutions like Citi because of its expertise in managing global risks.

The various issues, such as rising interest rates, that have stemmed from the pandemic and further escalated by geopolitical issues could actually be positive for some parts of Citi’s business, says Babej, noting that there are tailwinds for the banking group from rising interest rates.

“In and of themselves — setting aside macro growth challenges and inflationary risk — rate rises have a positive impact on several of our spread-based businesses, like treasury and trade. Having said that, our strategic focus is on growing wallet share with clients by leveraging our unique global network across interest rate cycles,” he adds.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.