Citi retreats from foreign consumer markets; flush Americans worry lenders

Receiving Wide Coverage ...

Wealth focus Citigroup “is shutting down most of its consumer-banking operations in Asia, Europe and the Middle East to focus on wealth management and other businesses, the latest sign that the original financial supermarket is rethinking how to do business,” The Wall Street Journal reported. “For Jane Fraser, who took over as chief executive officer last month, the change marks one of her first big moves at the bank’s helm.”

“While the other 13 markets [Citi is exiting] have excellent businesses, we don’t have the scale we need to compete,” Fraser said. “I’m very clear around our priorities, which is closing the return gap with our peers.”

The move was aimed at “appeasing investors who have pressured the bank to boost profitability by cutting costs in its underperforming retail network,” the Financial Times said. “Compared with other U.S. banks, Citi has by far the most far-flung international retail network. Citi said it would focus its business on wealth management in those regions through four hubs: Singapore, Hong Kong, the United Arab Emirates and London.”

“We have decided that we are going to double down on wealth,” Fraser said.

“Fraser wants to move quickly to remake Citigroup, so it made sense that her first earnings call as CEO of the global financial powerhouse had an air of urgency,” American Banker said.

Wall Street Journal

Wait and see

“The good news for banks is that consumers are flush with cash and less likely to fall behind on their debts,” the Journal says. “But this also means it will be that much longer before they need to borrow more.”

“Banks really need loan growth to offset the effect of low interest rates and the drag of huge deposit inflows sitting in cash on their balance sheets. In theory, the economic growth that is anticipated for this year would imply a greater use of credit by consumers and businesses to fund more activities. Yet banks so far still aren’t forecasting much more than a tepid uptick in consumer borrowing in the near future. For now, lenders are still waiting to see if consumers will pick up where they left off with credit cards before the pandemic.

Financial Times

A tale of two continents

“There was one potential dark cloud hovering over this week’s bank earnings: loan growth has been more sluggish than normal during an economic expansion,” an FT op-ed says. “That may reflect low business confidence but also that last year’s government lending programs crowded out banks. Still, even with these caveats, the fact remains that big U.S. banks are on a tear. That is a striking contrast to Europe.”

“Low interest rates are hurting eurozone banks. Zero, or even negative rates have been bad for all western financial institutions this past decade. But helpfully, in the U.S. at least, the yield curve seems to be steepening. The Federal Reserve seems determined to keep short-term policy rates low, while inflation jitters and economic optimism push longer-term rates higher. Such steepening typically raises banks’ net interest margin and profits, as they can fund themselves at low short-term rates, and lend at higher longer-term rates. However, this seems less likely to happen in the eurozone, given its weak growth prospects.”

Prison break

Barclays “has attracted criticism for underwriting a bond offering by CoreCivic to fund the building of two new private prisons, in a new dispute over Wall Street’s relationship with the controversial sector. About 30 activists and investors, among them managers at AllianceBernstein and Pax World Funds, have signed a letter opposing the $840 million fundraising for two new prisons in Alabama, which was due to be priced on Thursday.”

“The bank said two years ago that it would stop financing private prison companies, but the commitment did not extend to helping them obtain financing from public and private markets. While Barclays is not lending to CoreCivic, activists and investors attacked its decision to underwrite the deal, which is split between private placements and public issuance of taxable municipal bonds. The arrangement is ‘in direct conflict with statements made two years ago’ when the bank announced it would no longer finance private prison operators, according to the letter.”