Citi Bank’s Withdrawal From 11 Retail Banking Units Worldwide

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Citigroup Inc is attempting to cut costs associated with its big international consumer banking business. According to REUTERS, the bank is withdrawing from retail banking in 11 countries, including Japan and Egypt.

The history of Citigroup Inc goes back more than 3 decades, during which the bank saw rapid growth with a sequence of accretions that presently made Citi the third biggest bank in U.S. However, the recent recessions have landed Citi Bank with toxic assets that it needs to promptly dispose of.

In 2012 the bank’s crisis managers came up with a list of countries in which the continued consumer banking would have a detrimental influence.

People close to the situation mentioned certain difficulties faced by the experts during the evaluation process. The difficulties were mainly caused by the want of homogeneity in the accounting and planning systems of the overseas branches. That statement was made publicly in 2013 to be later disclaimed by the Citigroup spokesman, claiming that both the tools and techniques were sufficient for the estimation carried out internationally.

It is fully understandable though that a corporation spanning over 100 businesses in different countries would need a considerable amount of time and effort for a reorganization. In this regard, consistency in divesting stagnating businesses came to be viewed as the priority by Citigroup Inc CEO Michael Corbat.

According to Citibank Chief Financial Officer John Gerspach, when answering reporters’ questions earlier this year, there was an attempt to strengthen revenue for the struggling businesses, but with little success. After eighteen months, it was decided to shed such retail banking operations that were running at a loss. CLSA stock analyst Mike Mayo commented on this with a tired cliché about being better off late than never.

I the international community needed another proof of what a tough job it is to run a huge conglomerate bank, Citigroup issued a press release quoting the results of an examination that revealed a major fraud situation in, Banamex, one of Citigroup’s Mexican banks riddled with problems. The fraud related loss of $15 million did not add to the attractiveness of that asset, and the subsequent divestment turned out to be a harbinger of things to come.

Citigroup crisis management is definitely appearing successful. The income statement reported for the third quarter of this year is $3.67 billion with earnings per share amounting to $1.15. That represents an increase from $3.26 billion and $1.02 respectively, the previous year. The bank’s efficiency in identifying its problem assets and making the best of them, can be illustrated with its revenue increasing by 3.1 percent as its share price rose to $51.47, as reported on October 13.

The adjusted net income, as reported, does not take into account tax advantage for the previous year and includes revised accounting data calculated with re-assessed bank’s debt value.

It should be highlighted that the expected revenue per share was $1.12, which is $0.03 below the actual revenue.

LOOKING INTO DISBURSEMENTS

Still, there is a way to go before Citigroup Inc can rest on its laurels. Revenue and expenses are estimated to grow at 8 and 11 percent respectively, leaving a 3 percent gap, which stems from debt obligations.

Citigroup CEO Corbat acknowledged the need to curb the expenses and to make it next year’s priority in order to safeguard the efforts of a previous decade.

Letting go of consumer markets in a total of 11 countries is seen as the safest bet to reduce the current OPEX by $1.34 billion, which should be compared to the expected growth revenue drop of a mere $34 million.

It is not the first time that Citigroup resorts to stripping out consumer units; their previous experience was pulling out of consumer banking units in 5 countries. The decision to exit from Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary, Japan, Nicaragua, Panama and Peru is expected to be highly efficient, and on top of that shutting down the retail banking in Korea.  The bank will still serve corporative clients.

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