Wednesday, July 27, 2016
bloomberg | How does a company lose 69 million customers? Just ask Citigroup Inc.
Once upon a time, about a decade ago, the New York-based bank had a global retail empire stretching from Tokyo to Tegucigalpa. It offered consumer banking in 50 countries, covering half the planet’s land mass, and served 268 million people.
Then a financial crisis, billions of dollars of losses from complicated securities linked to subprime mortgages and a government bailout upended its plans. The bank has since sold or shut retail operations in more than half the countries in which it had a presence, including Guatemala, Egypt and Japan. It reduced the number of branches in the U.S. by more than two-thirds and has gotten out of subprime lending, student loans and life insurance. In the process, it let go about 25 percent of its customers along with more than 40 percent of its workforce.
“Banks are figuring out that providing every product and every service to every client in every country was just wrong,” said Vikram Pandit, who led Citigroup from 2007 to 2012 and used to tout what he called the company’s globality. “So they are unwinding and shedding assets. We’re not close to being done.”
The transformation of Citigroup, and similar changes at HSBC Holdings Plc and other global banks, isn’t just about cutting expenses. It’s also about looking for greater returns by focusing on the richest customers -- high-net-worth individuals, large corporations and institutional investors.
Citigroup says it’s leaner and safer today. But in serving those clients, the bank has bulked up on trading, a business that helped get it into trouble before. It doubled the amount of derivatives contracts it has underwritten since the crisis to $56 trillion. The company, which used to make most of its profit from consumer banking, now gets the majority from corporate and investment banking.
HSBC, which had an even bigger global retail footprint than Citigroup’s and advertised itself as “the world’s local bank,” also has retreated, quitting or planning to get out of consumer banking in more than half the countries it was in and jettisoning 80 million customers. Retail banking’s share of profit has dropped by half as commercial lending and investment banking filled the gap.