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Citi's globalist CEO
THERE are four words that Citigroup's global CEO Michael Corbat almost always mentions when he speaks about the institution he has led since October 2012: "Simpler, smaller, safer and stronger."
They sum up the transformation of Citi since the global financial crisis of 2008, which devastated its balance sheet and led to a US$45 billion taxpayer bailout, which has since been repaid, with the US Treasury even making a profit.
"We're a very, very different firm than we were going into the crisis," says Mr Corbat who visited Singapore in March.
Why simpler? "We're a bank," he explains. "We're not an insurance company, we're not in asset management, we're not a retail broker, we're not private equity, we're not a hedge fund. We're a bank.
"And we're smaller. We went into the crisis with assets of about US$2.4 trillion. Today they're about US$1.7 trillion, but the composition of those assets and our client base are very different. Today, our assets exclusively support our client and customer franchises - not proprietary trading and not equity investments. There's also a higher proportion of liquidity.
"We're safer because we have among the industry's leading capital positions. We finished 2015 at 12.1 per cent tier one common equity.
"And we're stronger. We generated US$17.1 billion of net income last year - our best year for earnings since 2006. And we did that with a very different business model."
Mr Corbat, 55, is the ultimate Citi insider - what they call a "lifer" - which is uncommon on Wall Street, where executives frequently job-hop. He joined Citi after he graduated from Harvard in 1983 and has been there since. He has done just about every important job there is to do at the bank.
He started out selling bonds for Salomon Brothers (which was taken over by the Traveller's Group, which later merged with Citi), managed Citi's high yield and derivatives business, oversaw its commercial and retail banking operations, headed its global wealth management unit, and served as CEO for Europe, the Middle East and North Africa.
Citi's 'bad bank'
If there's anybody who knows the bank inside out and back to front, it would be him. And he knows more than just the bank: he knows probably more clients than anybody else. And, of course, Citi's staff around the world. "I'm going on to 33 years in the company, so I know our people very well," he says. "In many cases, I not only know our people, I know their families."
A particularly challenging (and, some said, thankless), job he took on after the crisis was as CEO of Citi Holdings, aka Citi's "bad bank", which was created after the crisis to warehouse many of Citi's non-core as well as "toxic" assets such as subprime loans. Mr Corbat led the massive clean-up operation, which is now almost over.
At the start, Citi's non-core assets - which he describes as "things that are not core to who we are and are not part of our target strategy for the future" - comprised about 40 per cent of Citi's assets.
"We had 70 operating businesses in there, in 45 countries," he explains. "At its peak, it was about US$800 billion of assets. So we shed those. At the end of last year, that was down to about US$75 billion. So it's gone from constituting 40 per cent of the company to about 4 per cent of assets. There are no operating businesses now. The only thing left are assets, almost exclusively US-based, largely mortgages.
"We said a few years back that we're going to take Citi Holdings from losing money to at least breaking even." Last year, it generated about US$1 billion of net income. Citi's "bad bank" is now profitable, and has been for the last six quarters.
Along with shedding assets, Citi also cut back on headcount. Its global staff strength has gone from about 375,000 pre-crisis to 230,000 at present.
'Gud' for the future
Going forward, Mr Corbat's Citi will tighten its embrace of three big themes, which form the acronym GUD: globalisation, urbanisation and digitisation.
Although headquartered in New York City, Citi is not a particularly American bank. It is global - arguably more so than any bank in the world. Unlike some other insititutions which cut back on their overseas operations to consolidate back home after the crisis, Citi never compromised on its global footprint.
And Mr Corbat intends to keep it that way; he views Citi's globality as one of its most precious assets. "Maybe being global is a little bit out of favour today, but the world is not becoming any less global," he says. "And your ability to re-create a global business model is quite difficult. In many places in the world, regulators won't let you acquire your way there. And in a slower growth, more regulated environment it's tough to build your way there. So we went into the crisis operating in 100 countries. And this morning we opened for business in 100 countries."
Then there's the theme - synonymous with Citi's name - of urbanisation. "We don't just come to work in 100 countries," says Mr Corbat. "We come to work in 700 cities. "If you think about the demographics of the world and where growth is going to come from and what that is going to look and feel like, a lot of it is going to be urban-based around the world. We're not necessarily going to compete with the local bank in the rural areas of a country. But India's a good example - we'll go head-to-head with anybody in the big cities of India. Cities are where our consumers and customers want to be - not just multinationals, but future emerging market champions as well."
But in every market, Citi is up against the top local bank, so can it be No 1 anywhere, and if not, is that a problem?
For one thing, says Mr Corbat, in many places and in many ways, Citi too is a local bank, in all but name. For example, it has been serving customers in Singapore since 1902 and indeed, was voted the best bank in Singapore in 2015 for the sixth straight year by The Asset magazine.
Where it has the edge over local champions is in terms of scale. "Local champions have one market, or a few markets. We've got many markets," he says. "And when you look at consumer behaviour, you want the same banking services wherever you go."
Scale also comes into play when it comes to innovation, he adds. "In our innovation labs in Singapore, Tel Aviv, Palo Alto and Dublin, we're developing technologies that we're rolling out not just in one or two markets, but across all markets."
Which brings us to Citi's digitisation drive.
'The world's first digital bank'
"We had an aspirational statement a number of years ago," says Mr Corbat. "It was: 'We want to become the world's digital bank.' We very quickly realised that to be a bank, going forward, you have to be a digital bank."
And so, Citi has invested unsparingly in digitisation and automation. "The investments and focus we have on digital is front to back and back to front," says the CEO. "So, the consumer gets the best smartphone app or whatever the latest technology is. Digital is transforming our middle and back offices. It's transforming our processes. Digital is allowing us to take pain points out of our consumers' and clients' lives. You should have the ability to check your balance right away without much effort, transfer money, use your ApplePay, your SamsungPay."
But in the world of digital banking is not Citi's extensive brick-and-mortar branch network - like that of most other conventional banks - something of a high-cost liability?
Mr Corbat explains that the branch network is being radically revamped. "We've been simplifying our branch network for the past several years," he points out. "And for those people who use branches, they use them differently from the way they used to. We don't need gigantic branches all over the place. So we've created smart branches which are much smaller."
In Singapore, Citibank has 11 Smart Banking branches, each of which offers an environment quite different from that of a conventional branch. They feature extensive use of digital technology including display panels forming media walls and interactive touchscreens. The branches provide for other innovations as well, including iPads carried by in-branch staff and interactive facilities for account openings and other services.
Mr Corbat points out that Citi also has "full-service ATMs". "We can issue cash, make a loan, accept a deposit and issue a credit card right out of those machines. We've got some tellers you can go to, but not as many as there used to be."
In high traffic areas, Citi has created "hub branches" such as in Capital Square in Singapore and Mong Kok in Hong Kong, with one big hub branch offering comprehensive services and smaller branches nearby offering more basic services. Globally, Citi has reduced the number of branches by about 30 per cent.
Mr Corbat says: "We have not only reduced the total number of branches, we've also changed the footprint, the size of those branches, what they do and how they do it. That's going to continue."
Execution and ethics
When everything is in place, execution is what counts. And Citi's CEO has made getting execution right an explicit goal. He has also defined the means to achieve it.
He explains: "We have gone through a pretty robust transformation in creating this global bank. We've become very focused. We've got the business model, we've got the resources, we've got the ability to invest. When you've got those things, then it comes down to execution. We need to be focused, taking that business model and delivering it to our institutional clients and our consumer clients."
His message to his staff is simple. "As I mentioned in my town hall (he held one with Citi's Singapore staff just before our conversation), what we ask of our clients and customers is that we want that you consolidate your financial life. We want your deposits, we want to provide your loans, we want you to use our credit card. On the corporate side, we want to manage your cash, we want to do your M&A, we want to do your bond deal. We want to do all those things."
But to achieve all that, Citi needs what he calls "the proper culture".
"If we're in the headlines for the wrong things, it undermines our ability to say to our customer: 'I'd like you to put more deposits with us', or 'I'd like you to carry our credit card'. And it's the same for the institutional side.
"And our people have an obligation to themselves, the firm and each other to escalate issues when something doesn't look right or feel right - to say something's wrong here, we need to look into this. We need to have that culture of escalation, without fear of reprisal, and where our leaders and managers are approachable. It's not about a compliance culture. Compliance is about the rear-view mirror. We want to be looking out the windscreen."
But Citi is also faced with headwinds. One is an economic slowdown in some emerging economies where Citi has been active, notably parts of Latin America, as well as Russia and China. It has sold its retail operations in Argentina, Brazil and Colombia. "In those markets, we didn't see a pathway around deep-seated large competitors to get our consumer business to a place where we felt made sense," says Mr Corbat. As for the bank's energy portfolio, he points out that 80 per cent of it is rated investment grade. Moreover, the bank's energy exposure decreased 4 per cent last quarter.
Going forward, he's cautiously optimistic about the oil market and its likely impact. "We see oil recovering in the later half of the year and we see oil stabilising at the US$40-$50 range. That's actually from a macro perspective, quite powerful. The US, Europe, China and Japan are all net importers of oil.
"In many ways it's the purest form of stimulus, because it goes straight into the consumer's wallet. But we haven't seen that flow-through yet. The consumer is saying: 'The world's an uneven place, a challenging place, whether it's the volatility in the market or whether it's what I hear about the politics, or negative interest rates - I'm going to be a bit cautious here and I'm not going to go spend that.' So we've seen savings rates go up, we haven't seen that extra money go back into the system as yet, but hopefully over time, we'll start to see that.
"So while those are headwinds, we don't see any of them as being a global derailer. But there's a fragility to the global economy that we've got to be mindful of."
In Singapore and the rest of Asia, Mr Corbat affirms that Citi has no plans to cut back on its operations. "Our strategy remains unchanged, our footprint remains unchanged and our commitment to the markets remains unchanged. We continue to be the largest foreign bank employer in Singapore and I expect that probably to remain the case."
The markets of Asean are also increasingly on Citi's radar screen, which may explain why Mr Corbat also chose to visit the Philippines, Thailand and Vietnam on this Asian trip, in addition to Singapore, which is the hub for its Asean business. "As I said in Manila, if there's any country that's growing at 5-6 per cent, I'll visit. There are not many of those in the world today."
Breaking up is short-sighted
Given Citi's impressive variety of banking assets and global reach, some shareholders and research houses feel that it deserves a higher market valuation than it currently has, which is slightly above 60 per cent of book value. Analysts at the US brokerage and investment bank Keefe, Bruyette & Woods, for example, suggested in a recent report that breaking up Citi would yield a valuation about 60 per cent higher than the current level.
Mr Corbat believes that such a break-up would be short-sighted. "If you look at the company today, we've completely restructured it," he says. "Second, if you look at what we have, you can't re-create it, that's very difficult - the barriers to re-creation are high. Right now, maybe globalisation and emerging markets are a bit out of favour, but if you look at growth rates in the world, while they have slowed, emerging markets are still growing at twice the rate of developed markets. So I don't think we'd want to leave.
"Then I look at the value of our payments network that we own - it's the world's largest proprietary payments network. Why would you want to split that up? There's real value there. And when you look at the companies we serve - they're not becoming less global. And they need a bank that has the ability to serve them. They don't want to be in the position of having to use 100 banks around the world. They're conscious of cost, of efficiency, of cybersecurity, and of all the regulations that affect them. So they want to consolidate who they do business with, and we're scaled to serve them."
A 24/7 company
As CEO of the world's most global bank, Mr Corbat's work-life spans all of the world's time zones. "The world is 24/7 and so this company is 24/7. So in some ways, you're always on call, you've go to get used to that," he says.
As to how he divides his time, he has publicly stated that he will try and have at least two client meetings every day, no matter where he is. "Typically, when I am on the road, I have many more. Last year, I had 577 client meetings. But they're the best part of my day. Because I get to meet fascinating people, I get to learn how they're thinking about our company, how they're thinking about the competition, what's important to them and what's not.
"I spend time with our employees, with our shareholders, with our board, with regulators, with politicians. In the space of this trip I'll do a little bit of all those things."
But he also tries to make time for himself and his interests, which include fly fishing, downhill skiing and football - which he qualified to play at a professional level after college. "You have to work all that in, because that's your sanity," he says. "So this morning I got up, I went to the gym, worked out and I had a swim. So you've got to create that time. Because if you don't create it, nobody will create it for you."
CEO, Citigroup, since Oct 2012
Born: May 2, 1960, Bristol, Connecticut, US
Education: BA (Economics), Harvard University, 1983
Dec 2011 to Oct 2012 CEO for Citigroup (Europe, Middle East & Africa)
Jan 2009 to Dec 2011 CEO, Citi Holdings
Sept 2008-Jan 2009 CEO, Citigroup Global Wealth Management
Till Sept 2008 CEO, Citi Global Corporate Bank and Global Commercial Bank
Positions held since 1983 include Head of Corporate and Investment Banking; Head of Global Emerging Markets Debt; Head of Global Relationship Bank
Joined Citigroup: 1983