Citi Regroups in Southeast Asia
Licking its wounds after the financial crisis and government bailout, Citigroup Inc. is looking to chart its path to recovery by expanding into Asian (and primarily Southeast Asian) markets.
Citi, which begun operating in Indonesia last month, opened its Malaysian brokerage operations earlier last week, started a China desk in Singapore, and is planning to expand into Vietnam as well. In just the first half of 2010 alone, the group has set up shop in 27 new branches in the wider Asia-Pacific region (taking its total to 710), and aims to raise the curtain on 70 more in the next year.
Why Asia and Southeast Asia? In a word: growth potential. The emerging-market franchise is a big part of Citigroup, and the Asia Pacific accounted for about 35 percent of Citi’s global net income in the first half of 2010 – the biggest contributor outside North America. According to Citi’s Asia Pacific head of equities Adrian Faure, “Southeast Asia has become increasingly important to the global investor base. Our regional and global clients are increasingly looking to invest in Asian equities given the region’s growth potential”. In particular, Citigroup’s Asia-Pacific CEO Shirish Apte mentioned that it wanted to tap Middle Eastern funds seeking to invest in Malaysia and other parts of Asia, since “they are becoming a good ground for capital”.
These developments fly in the face of skeptics who believed that Citi would retreat from international markets after its rescue by the U.S. government during the financial crisis. Instead, the appears to be bouncing back, boasting net profits of $7.1 billion in the first half of 2010 even as Washington continues to own an 18 percent stake.
Some still see formidable challenges ahead for Citi despite these encouraging restructuring initiatives. The Financial Reform Act, passed in July this year, is expected to trim the profit margins of most banks since they will no longer be able to generate revenues from risky bets with their own money, in addition to stricter capital requirements. The shrinking of Citi Holding business through asset sales, others predict, will pose future revenue challenges as well. Exactly how much these factors will put a brake on Citi’s thrust into Southeast Asia remains to be seen.
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