Francisco Aristeguieta took over as Citigroup’s head of Asia Pacific on June 1 last year. It was not ideal timing. Two weeks after he arrived, China’s stock markets crashed.
The benchmark Shanghai Composite stock market index hit a multi-year high of 5,166 points on June 12, before tumbling 25% in a month. Aristeguieta has been grappling with the fallout.
Consumers and institutional banking, gripped by uncertainty, have backed off making investments.
He has responded by closing bank branches and streamlining operations.
“These are not always easy discussions, people can hang on to the past, but I am very aggressive when it comes to making sure capital is where it needs to be,” Aristeguieta told FinanceAsia during an interview at the top of Citi’s skyscraper office in Hong Kong.
Citi does not appear to be over-exposed to China. None of the 16 markets Aristeguieta manages in Asia contribute more than 13% of the region’s earnings. But that is cold comfort when China’s economic slowdown buffets the entire region.
“That moment in time was the beginning of a new phase in Asia,” he said. “The region had been growing non-stop and the market correction was a wakeup call.”
Also testing Aristeguieta’s mettle is the fact he is new to Asia and managing a business about 50% bigger in terms of revenues than he was used to as CEO of Citi’s Latin American operations.
An insider at the US bank said this promotion is a vote of confidence by top management in New York, but also a test. Aristeguieta joined Citi in 1994 as a relationship manager and now reports directly to group chief executive Michael Corbat. He appears keen to rise to the challenge in Asia and prove he can hit financial targets despite adverse market conditions, the person said.
That confidence may stem from the fact the Venezuelan national is rather used to managing a business in volatile conditions after leading Citi through a three-year repositioning of its business in Latin America. On the streets of Caracas, where he went to university, protests in recent weeks over economic hardship threaten to unseat the President Nicolas Maduro.
“I come from a place where you have to do a lot without a lot of growth,” he said. “It was a place that had a huge degree of volatility over many years. This is an environment that I am very familiar with. To me, it is all about resource allocation and putting your capital against the best opportunities.”
Fresh eyes also mean Aristeguieta has been able to make some tough decisions on where to cut costs. Citi’s operating expenses in consumer banking across Asia fell 1% during the first six months of 2016 from the same period a year earlier, showing that cost savings from the branch closures have started to overcome the one-off costs.
He also saw through the sale of Citi’s 20% shareholding in China Guangfa Bank to China Life Insurance for $3 billion, which closed on August 29.
“We’ve been [in Guangfa] for 10 years and it has been very profitable but as we have built our own consumer operation it does not fit into our portfolio any more,” he said. “Does that mean we want to leave China? No. It means the way we want to engage with China going forward has evolved.”
Aristeguieta has not made these decisions in isolation. But he has taken the lead. He took a swift tour of the region last summer before presenting his thoughts to Corbat and his board of directors at a meeting in Shanghai last October.
The result was a brainstorming session on strategy that is reshaping Citi in the region. The bank doubled down on key international clients who use its network, which spans over a 100 countries, to manage liquidity and working capital positions.
But that focus on core clients came at a price. Citi dropped some smaller clients. In some cases, Aristeguieta showed up in person to explain the decision.
“These clients were not contributing to revenues to the tune we would expect,” he said. “These were primarily local clients using a transactional relationship with no potential to further the relationship that were probably better served by a local bank.”
Aristeguieta’s willingness to shake things up has also been reflected in his team. He created the new position of head of corporate banking in Asia Pacific, picking Japan corporate banking head Gerry Keefe to take the job. In June, Christine Lam took over as China country head; David Livingstone became her equivalent for Australia. But Aristeguieta has also lost some key players such as Michael Zink, who retired after a 28-year stint at the bank.
“I’ve been making management changes and strategy changes and process changes to make sure that we as a team are growing share,” he said.
To be sure, much of his changes have been in line with Citi’s global strategy. Citi has reduced institutional clients across 102 countries by more than half and focused on selling an array of financial products to affluent urbanites.
But Aristeguieta is the man on the ground — and sometimes off the ground. He spends much of his time flying around the region pushing the strategy through. There is, however, one caveat.
“I have a golden rule that every Friday I am home for dinner with the family,” he said.
Bricks-to-clicks
Stephen Bird, Aristeguieta’s predecessor, went on to be head of consumer banking globally. It appeared a logical step for the well-regarded Scotsman — 12 out of the 24 markets in which Citi has a consumer banking presence are in Asia.
When Bird left, the consumer bank had just enjoyed a record run amid a jump in stock prices. But Aristeguieta has had it tougher as regional head. Consumer banking revenues in Asia slipped in the first six months of this year by 8% to $3.4 billion, from $3.7 billion in the first half of last year. Income fell by 24%.
“After a record first and second quarter for wealth management in 2015, clients moved out of markets and have sat on the side-lines since,” he said.
One of Aristeguieta’s key drives has been to accelerate the shift from bricks-and-mortar bank branches to digital channels. Citi had 461 branches in Asia as of the end of the second quarter, down 13% from a year earlier. The square footage in the region has also shrunk by 10%. In the other direction, around 90% of Citi’s consumer-banking transactions now happen outside a branch in Asia.
Aristeguieta acknowledges that his aggressive attempt to push Citi towards digital banking has not gone unquestioned within the ranks. But the move has already proved effective — something that has been helped by Citi’s bancassurance partnership with AIA.
“When you talk to country heads they were naturally nervous,” he said. “They said if I close branches I’m going to lose deposits and the market is going to think we are pulling out. Eight or nine months after implementing these decisions all the drivers are up. Deposits are up, insurance sales for AIA are up, digital engagement is up, fees are up and AUMs are up.”
This shift has been combined with migrating Citi’s retail systems onto a common platform, a huge undertaking globally called Project Rainbow, that is now complete.
The more efficient retail banking operation has freed up resources to invest in growing areas and to help Citi adapt to the changing marketplace. Mobile distribution is increasingly becoming the main channel of interaction between bank and customer.
There is plenty of competition on the horizon. Digital challengers are coming in all shapes and sizes — from giants such as Apple, Google, Alibaba and Facebook, to smaller, fleet-of-foot start-ups.
Citi has been plugging into new digital ecosystems in the region as another way to cut customer acquisition costs. In Southeast Asia, it has partnered with taxi-hailing app Grab. In China it has collected 41% of digital payments from its credit cards via Alipay as of August 26, just weeks after making the connection.
“That’s how powerful it is,” said Aristeguieta.
Citi is also investing in voice biometrics to identify customers with minimum effort on their part, reducing by more than half the length of the call. It is now live in four markets, and Citi plans to go live in another six during the second half of this year. In a year it plans to be running the service in almost all of its markets across Asia.
The US bank is confident this strategy will pay off. During a second-quarter results presentation CFO John Gerspach said “we expect Asia consumer revenues to return to growth in the second half of 2016, resulting in positive operating leverage year-over-year.”
Aristeguieta agreed and added some more colour: “We’re seeing second half growth for wealth management in Asia compared to the first half – this is going to continue as clients gradually feel more comfortable going back into the equity markets.”
Aristeguieta is not alone in dealing with tough markets. But he has benefitted from Citi’s swift restructuring after the global financial crisis, and its cotninued commitment to keeping a tight rein on costs.
“Citi has been in front of the cost-cutting trend over the past three years in Asia,” said a senior head hunter who declined to be named because his other clients among banks in Asia would be offended. “It has been fighting trim and has been one of the few bulge-bracket banks to hire at the margin in the first half of this year .”
While European banks such as Barclays and Standard Chartered continue to sell assets in Asia as profits slump, Citi is eyeing more market share with the clients it wants to bank.
“The disarray that we are seeing around the market has definitely been more conducive to us gaining more wallet share. That has been happening for the last couple of years and will continue,” said Aristeguieta.
He could be forgiven for ringing a note of optimism. Citi certainly appears to be positoning itself well for the future. Perhaps just as importantly — China’s stock market has stabilised since his arrival.
Additional reporting by Matthew Thomas
