Citigroup Inc. is still reaping the benefits of having a global presence, but an unusual pattern of inflation and strengthening currencies in a handful of countries is starting to worry Chief Financial Officer John Gerspach.
Usually inflation gives way to higher interest rates, which in turn leads to currency depreciation, "and you rarely get the phenomenon that we saw in 2010 in several countries, where we had both inflation and currency appreciation," Gerspach said Thursday at a Credit Suisse financial services conference in Miami. But last year in Brazil, India and Mexico, all of which are important markets to Citi, "each country had inflation above 4% and currency appreciation of 4% of more," Gerspach said. "If we continue to see that combination… that could put pressure on the expense base."
But the biggest bump in Citi's expenses in the near term will come from planned investment increases for the company's consumer banking business, which plans to pump $3 billion to $4 billion into branches, marketing and technology over the next three years. The technology-heavy global transaction services unit will maintain its typical investment requirements of about $1 billion annually, while the "big expenditure builds" for the capital markets and investment banking side of the business "are largely behind us," Gerspach said.
