Smith Barney veteran steering Citi’s new start in Europe

For a bank that has been through considerable changes since the US government stepped in to rescue it in 2008, James Cowles has undoubtedly been a source of stability. Since he started as an investment banker at Smith Barney in 1979, he has worked his way through debt and equity markets, crossed the Atlantic in 2003 after the acquisition by Citi, and risen via chief operating officer to become chief executive of Citi’s Europe, Middle East and Africa (EMEA) regional business in January 2013. It is a role that comes with a reputation – his predecessor Michael Corbat is now chief executive of the entire bank.

“Our clients look at us as a global bank. EMEA is the largest single region we have for our institutional client business, Citi is present in more than 100 countries and earns more than 50% of its revenues outside the US. We expect to maintain that differential over competitors, because mega-mergers of banking groups look to be off the table,” says Mr Cowles.

Even among other cross-border banking groups, "we are no longer in a world where every large bank is trying to do everything, everywhere", he adds. Banks are realising that they have finite resources, so they have to allocate resources to those products, countries and clients where they have a competitive advantage.

One of Citi’s advantages is that it already took those decisions as part of its post-rescue turnaround plan. Non-core assets were spun out into Citi Holdings, which has managed to wind down a $950bn balance sheet to just $150bn in less than five years. From the EMEA region, those assets included consumer banking operations in Romania and Turkey that were sold, while those in Spain and Greece remain on the list for sale. That leaves a small number of consumer banking operations in central and eastern Europe and the Middle East – most notably Citi’s successful Russian subsidiary – under Mr Cowles’ control. The bulk of activities under his charge are in the institutional client group (ICG) segment, which consists of corporate banking, capital markets, investment banking, private banking and transaction services.

"We have a physical presence in 55 countries in EMEA, adding the 55th just this year – Iraq, where we already have 70 global clients operating. We go where they go," says Mr Cowles.

Investment banking commitment

Mr Cowles is keenly aware of the products that are best suited to that global footprint. Cross-border treasury and trade services and foreign exchange (FX) are an obvious example, making each local market available globally. He says Citi also remains committed to investment banking, even after several years where the revenue pool in this segment has been constrained. Since the start of 2013, Citi has hired former Credit Suisse heavyweight Luigi de Vecchi as chairman of European investment banking, Christian Kames from Goldman Sachs as head of Germany mergers and acquisitions (M&A), and Ben Story from Deutsche Bank as head of UK investment banking and broking.

"In the past 18 months, we have been getting leaner but stronger, trimming numbers but hiring key players. That strategy is working, and we have increased market share across M&A and capital markets origination this year," says Mr Cowles.

The equities business is challenged on an industry-wide basis, but Mr Cowles says Citi remains committed to it as a logical fit with the other markets products and the bank's global reach. He says the bank has restructured the division and brought down the headcount while increasing market share in EMEA.

The hiring of Andrew Morton and the rates trading team of Lehman Brothers in 2008 has enabled Citi to climb into the top three in an area where it was previously underweight. In the same year, the hiring of Tim Gately from Goldman Sachs led to a similar build-out in credit trading.

Structural changes

On a structural level, the major transformation in the ICG unit has been the re-establishment of the corporate relationship banker at the heart of the business, acting as the lead for each client across all products. Individual product lines such as investment banking, markets and transaction banking still have their own points of contact for each client, but there needs to be one parent account manager overarching all the business units. The crisis has made that model more relevant than ever, Mr Cowles believes.

"You have to think about what is strategic for the client, what needs C-suite relations. Maybe 20 years ago, that was purely M&A advisory. Then add to that equity capital markets to gain access to the equity market for funding and M&A purposes, as well as to communicate with the investment community. Since the financial crisis, debt capital markets have become strategic as well – capital structure, liquidity, and finding sources of funding. Now I would say you can add treasury and trade solutions to that list, because our largest clients know they need to seek out opportunities across the globe. Topline economic growth is limited in many economies, so companies need to be more efficient, and our transaction services can help with that," he says.

The growing focus on transaction banking led to another structural change. The umbrella of 'Citi Transaction Services' was removed, leaving two business lines, treasury and trade solutions (TTS) and securities and funds services (SFS) reporting directly into ICG and the regional CEOs. The intention was to give each of the businesses equal status with the other lines such as investment banking and markets. Mr Cowles says the removal of an intervening management layer, together with the reinvigorated lead banker role, has also helped integration between TTS, SFS and the other parts of ICG.

One area of increased focus is commodities, where Citi has traditionally been underweight. Mr Cowles says now is a good time to change that, thanks to both the external and internal environments. Externally, the businesses of the largest commodities banks, based heavily on proprietary trading, are now under regulatory scrutiny. Internally, the new relationship between TTS and the rest of ICG suits the development of the commodities offering.

"With Dodd-Frank and the pressure to sell proprietary holdings along the commodity supply chain, some banks have to change their business models. Our focus is on client solutions rather than prop trading, and that ties in well with our effort to bring the markets and origination businesses more closely together with TTS by providing client commodity hedging and trade finance facilities," he says.

Steady progress

At a time when other banks are still going through the process of closing entire divisions, Citi has the relative luxury of planning expansion in certain areas. Mr Cowles says the bank's strategic focus is now set, with any adjustments needed only "at the edges".

However, the 55 country operations that he oversees clearly offer a wide range of prospects for the bank in terms of macroeconomic environment and the status of Citi's own presence and market share. Mr Cowles says the process of deciding which markets need optimisation, and which are suitable for investment and growth remains ongoing. He is certainly not writing off the slow-growing economies of western Europe.

"Notwithstanding the euro crisis in the past few years, people might be surprised to know that we have continued to see a number of opportunities with our clients. For financial institutions, we have been very active working with them in terms of funding, sometimes in dollars, in terms of asset disposals, and advising on capital structure. Many eurozone corporates have seen the crisis as a signal to expand their business internationally, and we have been able to show that Citi is the right partner for that," he says.

Citi has also been, throughout its history, a bank that specialised in taking companies from developed countries into the developing world, and Mr Cowles counts a number of large emerging markets such as Russia, Turkey, Nigeria and the United Arab Emirates as potential opportunities for 2014.

Increasingly, the flows are changing direction, and he expects a growing number of top-tier emerging market "champions" to expand in other emerging markets and the more mature economies.

"We expect cross-border trade to be a major theme for 2014, with flows becoming more global and emerging market clients in particular building momentum. The opportunity is to provide these clients with solutions for increasingly complex needs, rather than just with individual products. We want to be the global bank for emerging market clients as well as our longstanding US and European clients," says Mr Cowles.

His other key priority is the continued development of new technology, especially in the TTS and SFS divisions. Mobile and internet banking are migrating from retail banking into trade finance and transaction services.

"This lowers the costs and enhances the service for our clients, and it is also about improving our own productivity and efficiency," he says.