HONG KONG — Citigroup Inc. plans to open 70 retail branches in Asia over the next year and announce a Chinese brokerage venture by December, a top executive said, highlighting how emerging markets are increasingly central to the U.S. bank's global business.
"We're investing more in Asia now than at any time in our history," said Stephen Bird, co-chief executive officer of Citi Asia Pacific.
Bird's comments underscore how crisis-hit U.S. and European banks are increasingly shifting resources eastwards in search of growth. Last year Asia was the largest contributor to Citi's bottom line, generating $4.5 billion of net income, about 30% of the U.S. bank's profit globally. Asia is again expected to make a significant contribution when Citi reports second-quarter results Friday, said analysts.
Asia Pacific could soon top North America as a profit center for the financial services industry, Citi said, citing data from consultancy McKinsey & Co. that forecasts the region will account for $457 trillion in earnings by 2012.
As banks bulk up, competition for talent in Asia is pushing compensation packages higher. Citi says that though it cut expenses by 9% in Asia during 2009 mostly by eliminating duplication, is now back up to pre-crisis levels for numbers of front office staff such as investment bankers and traders.
But Bird downplayed cost concerns. "We should be able to sustain a healthy pattern of growth, meaning that over several quarters revenue growth should outpace expense growth," he said.
Citi named Bird and Shirish Apte as Asia-Pacific chief executives in 2009 making them responsible for performance, strategy, and execution in the region. Bird oversees operations in Northern Asia including Japan, China and Korea, and Apte for Southern Asia including Australia, India and Singapore.
New York-based Citi has a presence in 18 Asian countries, making it one of the few international banks, along with HSBC Holdings PLC and Standard Chartered PLC, with a wide network in the region. It continues to expand its presence: Citi was just granted a seat on the Indonesian stock exchange and expects to win approval for a broking license in Malaysia next month. In 2009, Citi's retail and institutional deposits grew by over 10% in Asia, with institutional deposits reaching $100 billion for the first time. In line with its global strategy, Citi is investing profits made in Asia back into its franchise in the region. Citi Chief Executive Vikram Pandit has slimmed the bank from a financial supermarket to a leaner company that caters to big institutions and individuals, particularly in emerging markets.
"We are a global bank but emerging markets are the heart and soul of the company and a key focus is also helping multinationals grow in emerging markets such as Asia," said Bird who is also a member of Citi's top decision-making body, the Senior Executive Committee.
The crisis mentality is easing within Citi, making investment in Asia and other growth markets more palatable. The Senior Executive Committee changed to meeting just once a week this financial quarter from twice a week during the financial crisis.
The money is being poured into areas such as Citi's retail branch network within Asia, which Bird sees growing by 70 branches over the next 12 months from 710 branches currently. It just got approval to open retail branches in its 10th Chinese city and on Thursday opened its fortieth branch in Hong Kong.
Citi is also in "detailed discussions" with a partner for an equity brokerage joint venture in China. Bird left the interview to attend a meeting on the subject and he hopes to have a deal wrapped up by the year end, assuming regulators sign off. Several Western banks are in the process of establishing such ventures to compete with ones that UBS AG and Goldman Sachs Group Inc. have operated in China for years.
"A local equities license is a priority and we are making good progress," Bird said without commenting further. "But if we're going to get hitched it's got to be a good match."