Citi pitches money-moving ‘crown jewel’ as central to revamp
CITIGROUP is putting one of its least glamorous businesses front and centre in its upgrade project, aiming to show how a sprawling system of moving money around the world can boost profitability.
The services business – one of the bank’s five newly formed divisions – will take the spotlight on Tuesday (Jun 18) at the bank’s Manhattan headquarters, where investors will be pitched by chief executive officer Jane Fraser and chief financial officer Mark Mason.
The restructuring and presentation draw attention to a segment producing a growing share of the bank’s profits, accounting for almost half of the total last quarter.
“This business is a diamond in the rough,” said Mike Mayo, an analyst at Wells Fargo. “It’s a best-in-class business in a worst-in-class, but improving, company.”
At its core, the division runs many of the pipes coursing through the financial system. It helps big international clients manage and move cash globally – handling payments for goods, services and salaries, processing capital flows and investments by funds, and providing cash at key junctures of supply chains.
It counts Amazon.com and Uber as some of its largest corporate clients. The US government also uses the bank for payroll at home and abroad.
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While the ups and downs of Citi’s trading operations and massive credit card business typically attract more questions on earnings calls, the services business has become a pillar of steady profit. It is often a bright spot at a lender whose broader results have lagged behind rivals and that faces regulatory pressure to spend money overhauling systems.
On Monday, the stock dipped on a report the Federal Deposit Insurance Corporation is taking issue with the bank’s co-called living-will planning.
In services, higher interest rates have spurred the volume of money the division moves, helping boost the stock price by about 17 per cent this year.
And in April, Fraser – not for the first time – called it the firm’s “crown jewel”.
Its relatively few competitors include JPMorgan Chase and HSBC Holdings.
Can’t recreate it
Citi’s network, closely entwined with its leading foreign exchange teams, grew out of a decades-long campaign to piece together a global banking franchise.
“You can’t go and build this network today – it’s way too complex,” Okan Pekin, Citi’s head of securities services, said. “And the network doesn’t give you staying power and competitive advantage by itself. You need the tech, the people, relationships.”
Citi’s global reach also has a downside. In January, the bank added US$1.3 billion to reserves to cover cross-border and cross-currency exposures in Argentina and risks related to Russia. The bank also is in the late stages of paring its retail banking presence in 14 countries.
“A lot of the time, investors who think they are buying a simple turnaround story ask if they have to start worrying about the rupee or the peso,” said R Scott Siefers, an analyst at Piper Sandler Cos. “That complicates the story sometimes.”
Citi’s stock initially underperformed the KBW Bank Index of major US lenders after Fraser took over in March 2021 with a mandate to overhaul internal systems. But, the share price has fared better since she announced more aggressive measures to boost returns last year.
This week’s pitch aims to continue that momentum, by showing investors there is more room for the stock to run.
“Citigroup has a lot to prove,” said Mayo. And “there’s a wide range of outcomes for Jane Fraser. She could get fired in 2026 or be banker of the year”. BLOOMBERG
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