What opportunities do you see for Citi in Asia-Pacific?
Asia is probably the single most exciting opportunity for us globally. In each of the 18 countries that we operate across Asia, there are opportunities to grow our business, ranging from the developed economies like Japan and Australia on the one hand to the fast growing ones such as China and India to the emerging Asian nations such as Bangladesh.
Asia's fast-growing middle class and increasing wealth and sophistication amongst the affluent plays to our strengths in wealth management and consumer banking. We have opened 32 new branches across the region this year, bringing our retail network to just over 500 branches, in addition to our 600 consumer finance outlets. We have hired more than 150 new Citigold relationship managers over this period. Our focus on cards continues unabated û we have signed seven major new co-branded cards, including launching a transit credit card with Delhi Metro Rail and announcing a partnership with Octopus to offer transit smart cards in Hong Kong. Last month we also launched our first debit card in China, following regulatory approval.
In private banking, the wealth creation in Asia, notably in India and China, is creating an increased need for global wealth management services and we now serve over half of the regionÆs billionaires. Increasingly these clients want capital market solutions too, which plays to our Markets & Banking business.
Corporate activity is healthy too, driven by the regional and global ambitions of many of our corporate clients. Our transaction services and foreign exchange businesses continue to see good client flows. Asia was the only region anywhere in the world to experience M&A growth in the first half and we continue active dialogue with companies that want to expand.
I think an area where you will see us increasing our efforts will be in the SME (small and medium-sized enterprises) segment. The connectivity between our private bank and Citigold businesses on the one hand, and the SME commercial banking businesses on the other, should provide fertile growth opportunities for Citi.
One of my goals is making all our core business work even better together to ensure we bring the firm and all our capabilities together to the ultimate benefit of our clients.
What are your immediate priorities?
My first priority is to further enhance our productivity and we are making good progress. This really means being more efficient in everything we do and making the best use of our capital and expense dollars to enhance our returns and to ensure that we are ready for the opportunities that will definitely arise for our franchise.
Risk management is especially important during these uncertain times. We have a strong risk culture and infrastructure in place in Asia and I am committed to continuing to invest in our people and technology.
Organic growth is another priority. Our Asia franchise is a key part of CitiÆs organic growth engine and we have initiatives in place to drive further growth. But we will also continue to review any inorganic opportunities that emerge if they fit with our franchise and our clientsÆ needs.
We have a dialogue with thousands of clients in our different businesses across Asia and we want to ensure that we are bringing the company together for our clients and presenting a complete picture of CitiÆs unique platform and portfolio of products. We want to ensure we are the first call if a high-net-worth individual wants to take his company public, or a corporate client wants a new credit card programme for his or her employee base.
I am also spending a lot of time focusing on the integrations of Nikko in Japan and Bank of Overseas Chinese in Taiwan. Both are well on track and Citi is already benefiting from the talent, distribution power and client base these acquisitions bring to our franchise.
But my biggest priority is our people. I've remain very impressed by the people across our franchise. This will always be my number one priority û ensuring we have the best people in the right jobs, who are motivated and empowered to drive success.
What benefits does the integration of Japan into Asia-Pacific bring?
The access to Japanese markets and the high level of Japan-Asia trade are part of the reason why we are so keen to ensure that these markets work well together. And, of course, the Nikko acquisition takes our franchise in the Japanese market to a new level.
Nikko Cordial Securities has 110 branches across Japan, nearly 2.5 million customer accounts and more than Ñ30 trillion assets under management. Our JV, Nikko Citigroup, which was established in 1999, combines the local knowledge and solid domestic network of Nikko with CitiÆs global leading financial services capabilities and our 100 year history in the market.
In May of this year, we announced the merger of Nikko Cordial into Citigroup Japan to create Nikko Citi Holdings Inc, which is our first step towards creating JapanÆs leading banking and securities group.
We are unique in the market and hold a strong position in terms of distribution channels. CitiÆs recent Ñ186 billion Samurai bond was the largest retail bond in Japan's history. We not only underwrote the offering through Nikko Citigroup, but also distributed it through Nikko Cordial Securities and Citibank, demonstrating the power of the universal banking model.
Outbound M&A is another huge opportunity, as Japan corporates look to expand overseas to strengthen their revenue base in the face of slowing domestic growth. Japan is a big investor already in Asia-Pacific, and is viewing China, India and Vietnam with great interest.
Some low hanging fruit is already being worked on û for example, we launched a Japan desk in our India franchise, staffed by Nikko employees to cater to the increasing number of Japanese companies (close to 400 today) investing in the market. We also have Citi Japan desks in China, Singapore, Thailand and Vietnam.
With low yen rates, a key trend in the Asian debt markets has been all the major Australian banks tapping the samurai bond market for cost effective capital. Citi has been in the middle of these flows and it underlines the power of having an integrated Asia-Pacific franchise, that gives us the ability to offer debt issuers direct access to the yen bond market.
You are pursuing the so-called universal bank model, is it the best model for Citi globally and in Asia?
The global universal bank model is the right model for Citi û particularly for capitalising on the high growth in emerging markets such as Asia.
Our consumer, cards, institutional and private banking business are all powerful business units as standalone entities. But combine them together, and you have a very powerful platform û a platform that gives Citi access to a deposit base in excess of $800 billion to support our growth or a franchise that operates in over 100 countries and a client list that spans the world û in todayÆs age of globalisation, that is a very powerful calling card with our clients and prospects. In these uncertain times, clients are in fact increasingly turning to Citi, which has the experience, expertise and depth to help navigate through these waters. The model has never been in question.
Over the past several months, [CitiÆs CEO] Vikram Pandit has taken a series of significant steps to improve risk management, strengthen the balance sheet and reorganize the company, which has put Citi on the path to future growth driven by its core businesses. We are now executing.
How much autonomy does the regional CEO structure give Asia-Pacific from New York?
The regional CEO structure was created to put more senior resources into a priority region, which includes some of the worldÆs largest and fastest growing economies. The idea is to move decision making closer to the client and business location. ItÆs in line with our global priorities to secure greater cross-business collaboration; and create a nimbler, more client-focused organisation.
But remember that our strength is our global knowledge, brand, network and balance sheet û delivered locally by the best people in the business û to succeed, I have to work in very close partnership with our global management team, who are highly supportive of our growth strategy in this region. So itÆs really not about autonomy, itÆs about collaborative partnership.
Have you had to reassure any clients in Asia about Citi considering events, which have impacted the bank globally over the past year?
We have addressed any client queries head-on although most clients I speak to recognise that Citi has taken action and is doing all the right things to emerge stronger when the markets recover. The past 12 months have been unprecedented in the history of financial markets. Banks have written off hundreds of billions of dollars due to subprime, leveraged loans and other financial assets in distress.
But we have raised over $40 billion in fresh capital to maintain our balance sheet strength, installed a new risk management team and have taken well-documented measures to make Citi slimmer and fitter.
Clients appreciate that we remain one of the best capitalised banks in the world with a tier-1 ratio of 8.7% at the end of the second quarter and have strong double-A ratings from the rating agencies.
How would you compare morale in Asia, say compared with the US?
I think morale in Asia is good, although all of us know that even Asia is seeing the tag-on effects of the financial issues that the US and Europe are facing û coupled with inflation and corrections in the equity markets.
In our Citi offices in the US, I would say that we are feeling better after the second quarter results û we had very strong revenue trends, expenses and headcount were down over the previous quarter and I think the markets and investors see us making progress on VikramÆs goals. But this is a marathon, not a sprint, as he says, so we are prepared to keep at this with determination around the world.
Risk management has been much talked about at Citi in light of the last year. How do you manage your risk in Asia?
Frankly, risk is everyoneÆs business û and many of our senior managers in Asia are very adept at understanding this. We have a strong regional risk team û and they, along with the country teams, work as partners. We have a team of risk managers and business managers in countries across Asia who understand the risks they are dealing with and are best placed to make the judgment call. By having in-country experts, who in most cases are locals with over 10 years of risk management experience, we ensure we have the appropriate risk/return profile for one of the most dynamic regions in the world. So it comes back to giving people who understand their business and the country the ability to make decisions.
One of CitiÆs unique advantages in risk is its global experience and ability to transfer knowledge across geographies. We, in Asia, have benefited from this over the years.