After setting aside $3 billion to cover loan losses in Latin America seven years ago, Citicorp is now making multimillion dollar investments in its South American units.

But the South American landscape has changed dramatically. Instead of lending money to insolvent governments, Citicorp is rapidly expanding its services to a growing South American business and social elite.

Citicorp competes with other money-centers, such as Chase Manhattan Corp., J.P. Morgan & Co., and Chemical Banking Corp. for trade and corporate finance business in Latin America.

But Citicorp is uniquely placed to cash in on the newfound economic strength of the region. The bank has had offices in countries like Argentina, Brazil, and Chile for more than 70 years, and offers a broad range of wholesale and retail services.

Unlike like Chase Manhattan Corp., Citicorp stayed in Latin America during the troubled 1980s. Only Bank of Boston has a similar local strategy.

but there is still a certain amount of risk associated with the region, says James McDermott, president of Keefe Bruyette & Woods.

Emphasis on Local Intelligence

"You've always got to be vigilant in markets with above-average growth," he points out. "You need to have good people close to the ground with the necessary intelligence to make the adjustments every time there's a political or economic shift."

That is what Citicorp believes it has. Its locally run offices target not only the top-tier companies and wealthiest individuals, but middle-tier companies and the upper-middle class. Citi says its long history in Latin America and its local expertise let it quickly take advantage of new market opportunities.

A lot of companies "prefer us to a suitcase bank," said Jorge Welch, a relationship manager for large financial institutions at Citicorp's unit in Santiago, Chile.

In the first quarter, Citicorp's profits from operations in developing countries exceeded profits in the United States and Europe for the first time, generating $349 million in earnings for the quarter ended Jan. 31, just exceeding U.S. and European earnings of $342 million. Latin America and Asia constitute the biggest pieces of developing country business.

Citicorp's wholesale and consumer businesses in Latin America generated $1.9 billion, or about 12% of total revenue, in 1993. Net income was $500 million, total assets $33 billion, and return on equity for the businesses was 35%, compared with 22% worldwide.

Latin American business is still small compared with Citicorp's U.S. and European operations, but it is growing rapidly. Wholesale revenues in 1993 for Latin America were less than half that generated in the United States, and the Latin American consumer business generated only one-sixth the revenues generated in the United States.

But revenue for the Latin American wholesale and retail businesses has grown at 21% annually for the past three years. Revenues in the United States and Europe have been growing at a tepid 2% for wholesale and 8% for consumer operations for the last few years.

"The last two years have been ones of incredibly explosive growth" in many areas, said Fernando Ynigo, Citicorp's group risk manager for Latin America. Mr. Ynigo oversees risk and credit activities throughout Latin America. He reports to Dennis Martin, who heads Citicorp's wholesale businesses in the region.

Targets Developing Nations

Citicorp clearly sees its future, not in the saturated and mature U.S. and European markets, but in developing economies. At the same time that Citi is squeezing costs in the United States, it is investing in areas like Latin America, Asia, and Eastern Europe.

Since 1991 Citicorp has invested some $600 million in operations in developing countries, according to Salomon Brothers banking analyst Diane Glossman.

Citicorp chairman John Reed told analysts this spring that the New York bank will not make any major acquisitions in the United States during the next two years, either of banks or product lines.

Citibank's "opportunities in Latin America are only partially tapped," said Ms. Glossman.

Observers say that if the highly inflationary economy of Brazil is stabilized -- which is expected to take place within the next year or so -- that will usher in huge demand for both wholesale and consumer services, including mortgages, credit cards, and other consumer products.

Brazil is by far the largest economy in South America. For many years, Brazil was the third biggest contributor to earnings for Citicorp, after the United States and the United Kingdom, analysts say. That was before the debt crisis.

Wholesale Operation

The bread and butter of Citi's Latin America business is its wholesale operation, built on relationships with the top 100 largest and most profitable companies in each of the countries where it has offices. Citi makes loans inside the country, in local currencies.

Global finance in 1993 generated about 15% of Citicorp's total revenues from wholesale services, or $900 million. Historically it accounts for about two-thirds of profitability in Latin America. But that could soon change. The consumer business generated about 9%, or $1 billion, of the bank's total retail revenues in 1993.

Citi's network of 127 retail branches in 10 Latin American countries offer consumer services from mutual funds to credit cards. And across Latin America, as the pension fund business is opened up to the private sector, Citicorp is establishing joint ventures.

Citi's operations in Chile have been the model for offerings in other Latin American countries. Chile was one of the first countries to restructure, and has relatively low inflation of 12%.

Profits in Chile

Established in 1916, the unit in Chile generates $30 million to $35 million in annual profits, according to Salomon Brothers' estimates. The profits are driven by capital markets transactions, mergers and acquisitions, mutual fund management, brokerage, and transaction processing.

"Now we are seeing the fruits of the past years' stabilization," said Francisco Leon, vice president of Citicorp, based in Santiago, Chile. "We're seeing substantial growth, basically because of a repositioning of the bank toward value-added products."

Among the areas targeted: capital markets, pension funds, Eurobonds, and ADRs, Mr. Leon said.

Citicorp's Argentina bank has grown rapidly since 1990, when the economy stabilized. Argentina's economy grew the most rapidly of all Latin American countries in 1993, with gross domestic product rising by 6.5%.

Citicorp's business has benefited: global finance assets doubled since 1990 to about $1.4 billion, according to analysts' estimates. The consumer bank offers credit cards, mortgages, auto loans, and mutual funds.

Citi expects to have 41 branches, up from 34, in Argentina by the end of the year, and is installing 30 to 40 cash machines there this year. Total deposits are $1.18 billion, making Citi one of the largest banks in the country in terms of deposits.

But Brazil remains the biggest question mark, and potentially the most lucrative market.

Today, the Brazilian unit generates some $100 million in annual profits, according to analysts' estimates. About a third of 1993 revenues come from capital markets, investment management, and corporate finance, and a quarter of revenues from institutional brokerage sales and custody, according to Salomon Brothers.

Citicorp's clients are the 800 largest corporations and 100 biggest financial institutions in the country.

"The Brazilian market is so dynamic, opportunities vary from product to product, market to market, so we shift from one to another quickly," said Mr. Ynigo. "People are extremely aware of their resources; few people leave their financial resources idle."

Citicorp is preparing for stabilization, and for a big shift of business to sell new investment products in Latin America. On the consumer side, there is increased demand for home mortgages and credit cards.

Mr. Ynigo says the biggest risk that Citicorp faces in Latin America today is that it could have too much business. "When you restore purchasing power in a local market like Brazil, with 160 million people, demand could be so large that you cannot cope with it," said Mr. Ynigo.

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