The business segment that's working for banks

In volatile markets, businesses like cash management and trade finance come to the fore with their annuity style revenues. FinanceAsia sat down with Anthony Nappi, head of CitiÆs global transaction services business in Asia-Pacific, to discuss the outlook.

What impact has the continuing volatility had on your GTS business in Asia-Pacific during the past year?
We are seeing new business acquisition increasing by 7% for the first few months of the year and as importantly the deal pipeline is up 6% -- our business is an annuity business that is not subject to lumpy episodic revenue, but to thousands of transactions across the region and products that underpin the business. We are very encouraged by the increase in new business, especially in our trade finance and export agency finance businesses.

Clearly, activity linked to episodic events such as issuer services around an IPO or cash escrow work around M&As have tailed off, but we are working on new opportunities with our retail bank, wealth management and fixed income businesses. GTS is a balanced business with a diverse portfolio spanning treasury, trade and securities and funds services.

Our business is also relatively capital light. So when you look at it from a return-on-capital perspective it is one of the most efficient businesses with excellent returns. This is always important for any business but even more so in these times.

What countries are standing out?
What is interesting is that while some of the core markets, such as China and India, are ticking over, some of the best growth rates are coming in some of the emerging markets. This includes countries like Vietnam and Bangladesh where companies are increasingly looking at ways to upgrade their cash collections or receivables.

We are also seeing excellent opportunities in Japan, Singapore, Australia and Hong Kong, especially as companies are looking to move from a fixed cost base to a variable cost structure and as such are looking for outsourcing arrangements covering everything from custody clearing to trade, payments and collections. That is the beauty of running a business in Asia-Pacific -- it's a diverse portfolio of countries all with their own challenges but most importantly opportunities.

What were the key drivers for your business in 2008 and have they changed for 2009?
One clear trend during the past year or so is that the treasury centre is no longer viewed as a cost centre but a profit centre. Liquidity management is even more crucial in markets such as these, corporate treasurers are even more focused on earning every extra basis point possible and cash management and liquidity solutions continue to underpin the business.

We are also seeing a pick-up in outsourcing and white labelling services. Many of our clients are looking to leverage the significant investments we have made in our technology platforms and our global network and these white labelled solutions allow them to offer a wider range of cash management, trade and securities and funds services products to their clients without significant upfront and ongoing investments. Naturally there is a greater emphasis on cost control in this environment and companies are increasingly leveraging our infrastructure and investment in technology for their services.

The outsourcing conversation is happening more and more, and is moving from being a transactional discussion to more of a strategic one. The upside for us is that we then pass more transactions through our processing centres, lowering the average cost and gaining access sometimes to local country infrastructure from our partner. It also helps us forge closer relationships in countries.

Other drivers include export agency financing and increased work in the public sector as governments in Asia increase there spend on infrastructure. This spend can sometimes be on technology and a recent example would be our partnership with the customs authority of Indonesia to provide the online payment for import tax duty payments and other duties.

How important is this business for Citi in Asia-Pacific in terms of numbers and client confidence?
A mandate is probably one of the biggest signs of trust a company can place in its banking partner, you are in effect becoming an integral part of their business process. Perhaps an IPO and selling yourself to the international investor community comes close. That said, given all that is happening in the financial markets and the banking sector, global transaction services is very much at the top of our clients' minds.

The GTS team is speaking to thousands of clients across Asia-Pacific daily, discussing some of the most important issues facing a company, such as their working capital needs, the need for more transparency, better control, optimisation of their excess liquidity, reducing costs and automating inefficient processes. The dialogue we have with these clients is crucial to our franchise. If clients can trust us to manage their cash, their liquidity and the basics for their business, it is a huge mark of respect from them to our franchise and future business.

In terms of numbers and importance to the business in Asia-Pacific, revenues were close to $3 billion in 2008, up 18% on 2007 with net income up 22%. GTS accounted for 17% of all Asia-Pacific's revenues in 2008, up from 12% in 2007. The numbers speak for themselves. I am confident the team can continue to grow the business further this year. It is a challenging market environment but it's a diverse business, I look forward to updating you next year.

Has there been any impact on your business from some of the global issues going on at Citi and what issues are currently on your clients' mind?
Clients naturally sometimes raise global issues and we welcome any opportunity to address them. The majority of our clients have been our banking partners for many years. They understand our strategy and that the commitment to Asia-Pacific has not changed across GTS and across the wider franchise.

The announcement of the exchange of preferred shares into common stock has been the most recent hot topic with clients, with questions over the structure and what it means for Citi in Asia-Pacific. It is a pretty straight-forward transaction to address the issue of tangible common equity, which the market is now focusing on. Once the exchange is completed, (Citi's tangible common equity) will be one of the highest in the industry.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media