Times have been tough for Citi since Sibos last convened in Vienna in September 2008. The institution failed in its takeover bid for US regional bank Wachovia, accepted the most funds from the troubled asset relief programme (Tarp) and eventually had the US government take a 36% stake in its equity. But despite the tough times, the bank continues to soldier on with that seemingly endless American brand of optimism.
Few places is this optimism more evident than in Citi's global transaction services (GTS) business. While global GTS revenues fall 1% year-on-year to $4.86 billion in the first half, Francesco Vanni d'Archirafi, head of Citi GTS, is confident that the business is solid and denies assertions that the bank is losing ground to competitors. As the 2009 version of Sibos -- the annual transaction banking conference organised by The Society for Worldwide Interbank Financial Telecommunication (Swift) -- gets into full swing in Hong Kong this week, he says there are "countless" opportunities for the business to grow and touts the bank's recent expansion and product launches in Asia.
Last month, Citi won a cash management mandate from Sri Lanka's Mobitel, filling out its portfolio as the primary payments bank for Sri Lanka's largest mobile phone providers. In May, Ivo Distelbrink was appointed as the bank's Asia-Pacific treasury and trade services head to "break down silos" between the two GTS divisions. And, in December 2008, the bank expanded its securities services business to Bangladesh, giving it a presence in each of the countries in South Asia.
Despite these positive gains in the region, Citi's GTS revenue in Asia-Pacific fell 8% year-on-year to $1.2 billion in the first half of 2009.
But there is nothing breaking Vanni d'Archirafi's optimism. The bank continues to invest in its GTS business and, as he tells FinanceAsia in the below interview, he sees the global economy recovering and is excited about the potential for public sector cash management mandates as he looks to grow the world's biggest transaction banking business.
It can be argued that transaction banking revenues are linked to economic growth. What trends have you seen in the business year-to-date and what do they tell you about the state of the global economy?
d'Archirafi: We are definitely seeing a drop in GDP [growth] with the economic downturn. Swift volumes are trending down 23% year-on-year and the volume of exports has also dropped as companies feel the impact of the credit crunch.
Having said that, I believe the economy is slowly but surely getting back on its feet. With the intervention of the G20 [group of 20] sovereigns through their central banks, and supranationals such as the IFC [International Finance Corporation], the World Bank and the Asian Development Bank, credit and liquidity are starting to flow back into the market. Credit spreads, which have stayed at a high over the past 12 months, have started falling since the end of the second quarter.
Interestingly, our volume of documentary trade -- letter of credit confirmations for instance -- has been constant through this period. Exporters have sought greater comfort by opting for LCs [letters of credit] and guarantees as financing options to reduce their counterparty risk exposures.
Did the events of a year ago alter the importance of GTS at Citi?
We had -- and still have -- the network and experience to rapidly and responsively mobilise at the onset of the financial crisis and with our clients, industry peers, infrastructures and regulators to ensure the financial system remained relatively stable and fully operational as the industry braced itself with each shock wave that hit us. We were commended by our clients and industry partners at the time for our steadfast engagement, and remain very proactive in working with key market participants on evolving regulation and risk management models in the aftermath.
We have always been a core business for Citi. Today, there is an even greater appreciation of GTS's contribution to Citi's performance. Through the financial crisis, we have been central to Citi's success, delivering consistent financial performance quarter-on-quarter.
Some of your competitors have anecdotally said Citi has stopped growing its transaction banking business and has been haemorrhaging customers. How do you respond to this?
The facts speak for themselves. GTS continues to be an important contributor of sustained financial performance for Citi, delivering strong returns on risk capital and significant core funding through client deposits in multiple currencies. As of the end of the second quarter 2009, GTS maintained average deposit balances of $288 billion. We have strong embedded client relationships that span the globe -- we bank 94% of the Fortune 500 -- as we provide a core suite of financial services to our institutional clients.
We believe we are the industry leader in financial results for our business. This is supported not only by our financial results, but by the fact that our clients continue to reward us with market-changing landmark deals and remain confident and committed to their relationship with us, voting for us as their main global cash management bank in numerous industry polls and league table surveys. In this challenging environment, clients are turning to us for capabilities and expertise to help them achieve greater operating efficiency and drive bottom line performance.
Citi is the largest transaction services bank by revenue with a presence in most markets. How do you intend to continue growing the business?
Our global footprint, technology, talent and holistic approach to our client partnerships are key to our competitive differentiation and we can see countless opportunities for future growth. We intend to grow our business by deepening and broadening our participation with our existing clients around the world, and by becoming a banking infrastructure or product platform provider and enabler to the financial industry. Through shared infrastructure and white-labelling of platforms and capabilities, financial institutions can focus on initiatives that are core to serving their own clients, while benefiting from our scale, experience and ongoing technology investment.
The public sector has become an important industry stakeholder and also an important client segment for us globally. We have the broadest range of solutions to enable government departments and state-owned enterprises to reduce costs through automation and centralisation, achieve greater visibility and control of their financial flows, administer fiscal stimulus programmes geared towards encouraging economic recovery, and to support fund raising activities by government agencies and development banks. Today, we process all passport-related payments in the US and all purchases through our purchasing card programme for a major Asian government. We are central to the successful transfer of best practices from the private sector to improve public service and efficiency.
What are Citi's plans in Asia-Pacific specifically?
Asia-Pacific is at the heart of our growth plans. We have entered the Asian century and the region is the seat of the major exporting economies that will drive our longer-term growth. I expect Asia-Pacific to be the source of many innovations as the region will probably leap-frog the rest of the world in adopting enabling technologies and taking advantage of emerging trends as it is relatively unencumbered by legacy infrastructure. We have strong embedded relationships with our clients -- both multinationals with significant operations in the region and Asia-parented companies with ambitious expansion plans -- where we are their banking partner of choice, connecting them to their global operation and supply chain through our network, platforms and people.
What new or enhanced products and services do Citi have in the pipeline?
Citi has always been at the forefront of technology innovation. Building on our award-winning CitiDirect Online Banking platform, we are launching CitiDirect BE -- BE represents Banking Evolution -- at Sibos this year. CitiDirect BE represents a radical departure from traditional electronic banking. It will provide a new, diverse set of functionality including sophisticated analytics and user-generated content, a media/video channel, as well as Citi's industry-leading electronic bank account management offering. CitiDirect BE makes these tools available via multiple delivery channels including a web portal, a la carte web services, straight-through connectivity via Swift or the internet, and mobile devices.
What will be the next big thing in transaction banking?
Globalisation is a mega-trend that will shape our future and the rapid advancement of technology will continue to change the way we live our lives. To me, the next 'big' thing on our evolutionary journey has to be to CitiDirect BE, and I believe we are staying ahead of the game by sustaining our level of investment in technology innovation and by working with our clients to transform how they operate in the future.
