Having established a Dublin headquarters, Citi's Europe, Middle East and Africa operations are well prepared for Brexit. And a strategic overhaul four years ago tightened up its risk management, leaving it leaner and safer, as the US bank's EMEA head, Jim Cowles, tells Stefanie Linhardt.

Jim Cowles

Citigroup, the US’s third largest bank by capitalisation, could be one of the winners following the UK's vote to leave the EU. With its extensive international network, operating in 54 countries in Europe, the Middle East and Africa (EMEA) alone, Citi is well placed to take advantage of the situation.

“Our assumption is that there will be a hard Brexit with no transition period. We have to plan for the worst case from a business point of view,” says Jim Cowles, Citi’s chief executive for EMEA. He adds that the bank is confident it can “continue to offer all the same products, services and solutions that we currently have and to the client base that we currently serve”.

Citi’s substantial presence in Europe means that even when the UK leaves the EU, the bank will still have operations in 20 of what will then be 27 EU member states. And its early 2016 decision to merge its UK and European bank and place the merged entity, Citibank Europe, in Dublin will leave Citi in a competitive position whatever the UK’s final deal with the EU – since everything Citi does through its bank chain it will be able to continue to passport into the remaining EU27.

Brexit question mark

For Citi, the biggest Brexit question mark is around passporting for its UK-based broker-dealer business. “With Brexit, we are going to have to make some adjustments to our broker-dealer business,” says Mr Cowles. "That will likely involve establishing an additional broker-deal within the EU.”

Citi is confident it will be able to service its clients in any Brexit scenario – and would like to be in a position to communicate to clients “specifically how we are going to address some of these issues, and the sooner the better”.

While on paper a US bank, Citi’s strong presence and 100-year history in the EMEA region puts it on par with many banks headquartered in the region. And as US regulators were requiring US banks to address issues with their balance sheets, capitalisation and strategies sooner after the financial crisis than in some other jurisdictions, Citi changed its strategy in 2013, allowing it to reap its rewards earlier.

“One of the by-products of that was that you had to focus on your strategy, become more disciplined in terms of what you are pursuing and to get the return on capital you need to focus on those businesses or products that you are good at because that’s what clients will pay for,” says Mr Cowles. It is a situation some European banks have yet to reach.

Simpler, stronger, safer

For Citi this meant focusing on becoming a leaner institution or, as it says, a “simpler, stronger, safer” bank, in a strategic overhaul in 2013. It then began to pull back from consumer lending worldwide, reducing its operations from 50 to 19. For EMEA this meant selling its consumer lending businesses in countries such as the once fast-growing Turkey in 2013 and Egypt in 2015. It significantly cut back in the region – so much so that in the bank’s reporting, EMEA consumer lending results from the five remaining countries (Russia, Poland, the UK, the United Arab Emirates and Bahrain) are now incorporated into its consumer lending results from Asia. 

Furthermore, a change in the focus of its institutional business meant Citi also reduced its institutional clients from some 30,000 globally to some 15,000 (and at a similar rate in EMEA), focusing on those where the bank could increase revenues.

“If we are not generating very much revenue with a client, then perhaps we are not the right bank for them,” says Mr Cowles. “We reduced the number of clients but meanwhile, with the remaining clients, we have proven that we can build our wallet share and actually overall grow our revenues from clients.”

Sticking with the region

Meanwhile, banks in western Europe are struggling with weak economic growth, ultra-low interest rates and rising regulation. Some populist measures have cost financial institutions dearly, especially in some eastern European countries, and currency devaluations, a commodity price slump and recession have also posted difficulties for banks in parts of the EMEA region. 

“At any point in time in this region we are going to have a handful of countries where there is some sort of challenge – it may be political, it may be military, it may be social, economic or regulatory,” says Mr Cowles. “The value of our franchise is that we have longevity in these countries and our corporate clients can count on us continuing to serve them even when there are issues in a country.”

This meant that even when Citi amended its strategy in 2013, adjusting its risk appetite across several regions, the bank did not withdraw from any country entirely. Mr Cowles says: “If our corporate clients saw us withdraw from a country in time of stress, they would question our commitment to the other countries. That is why consistency is so important.”

Within its 54-country presence in EMEA, Citi operates in economically troubled countries such as Russia and Ukraine. While 2014’s plunge in the oil price and its repercussions especially weighed on the Russian economies, where gross-domestic product (GDP) fell 2.8% in 2015, Ukraine’s recession was even more severe, with a GDP contraction of 9.8% in the same year. Still Citi stuck with its businesses – if with an adjusted risk appetite – and remained profitable in all EMEA jurisdictions.

Boosting Saudi operations

Yet despite the uncertain environment within the EMEA region, Mr Cowles is optimistic for the year ahead. First-quarter 2017 results have already shown a 14% increase in earnings globally to about $4.1bn, with the EMEA region contributing $855m, compared with $374m in the same quarter in 2016.

“When I look at 2017, I am encouraged by what I see,” says Mr Cowles. He expects growth across his region in all product areas – banking, treasury and trade solutions, private banking and markets – and in the regions of Middle East, Africa and western Europe.

He sees continued opportunities for the bank, especially in the Middle East, as traditionally oil-reliant sovereign clients there are adjusting their funding strategies due to lower energy prices. Among them is Saudi Arabia, which seeks not only to privatise part of its petroleum and natural gas company Saudi Aramco in what is expected to be the largest ever initial public offering (IPO), but also to raise an additional $200bn through further sales in the coming years. 

To be at the front of the banks lining up for business in Saudi Arabia, Citi applied for and was granted a full investment banking licence at the end of April. The licence will enable Citigroup Saudi Arabia to provide markets, investment banking, debt and equity capital markets operations, as well as securities research capabilities to its local and international institutional clients.

“Sovereign clients in the Middle East have been approaching the capital markets, they have been involved in various privatisations and projects to increase FDI and to diversify their economies,” says Mr Cowles. “They are pursuing a number of different avenues to make the fiscal position in their countries more robust.”

In the past couple of years, Citi has already achieved record results in the Middle East and expects 2017 to once again bring more activity across all of its products.

European recovery

In Europe, Mr Cowles is seeing a more active market for mergers and acquisitions (M&A) than in the previous year, but also in the capital markets and in terms of equity offerings. In the first five months of 2017, Citi was involved in nine IPOs in the EMEA region, and he would like to see the bank continue to expand in this area as growth, especially in European economies, is slowly improving.

As European companies increasingly seek to expand their businesses opportunistically overseas – organically and through M&A – Citi aims to continue expanding its market share as “we can be very helpful for companies looking to grow in terms of how we deliver our products to them as they expand”, says Mr Cowles. “That is a natural area for Citi to grow.”

Economic growth in the EU28 in 2017 is expected to stay at 2016’s level of 1.9%, according to European Commission data, with countries such as Greece recovering. Meanwhile, in most eastern European and former Commonwealth of Independent States countries such as Russia and Ukraine, the economic situation has also stabilised. The International Monetary Fund forecasts a 1.4% expansion in the Russian economy and 2% growth in Ukraine in 2017.

With European economies more supportive and strong prospects in the Middle East, Citi should reap the rewards in 2017 – and while Brexit remains one of the biggest uncertainties, the bank should at least be among the best placed to tackle any fallout.

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