Thursday, 22 August 2019

On the global banking facts of life: Sacks in the Citi

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Themes of Wednesday: the Duchess of Cambridge, the Autumn Statement, the Duchess of Cambridge again and then the announcement that Citigroup is cutting a 11,000 jobs, worldwide. The Osborne Show was pretty much to form which, given the state of the economy and of government finances, is to be applauded.

Anthony Peters, SwissInvest Strategist

The the Independent’s cartoon of his pulling the skeleton out of a hat is redolent of that senseless past where budget day theatre was all about pulling rabbits from hats and which reminds us of the many problems which we face today as a result of past give away government.

However, I probably ended up spending more time talking to people about the Citi announcement. Yes, investment banking is taking a beating again but, given the miserable volumes and the change in the overall market environment, the surprise would have been if it hadn’t. However, it was the closing of consumer banking units both in the United States as well as overseas which is striking. Let’s face it, we’ve all been told that “casino banking” is bad but that “proper” banking is good. Obviously it’s not quite so black and white.

“Fundamentally Citigroup needs to figure out what its real strategy is as a bank…..they have great potential to be that international bank, but what’s lacking is putting together a real coherent strategy around that.”

All the things that banks did in order to make their business profitable and to subsidise the paying and receiving utility have been declared to be either illegal, immoral or fattening.

But there is another element to be considered. I saw a quote by Cliff Rossi, a former chief risk officer for Citi’s consumer lending group and a teaching fellow at the University of Maryland: ”Certainly you want to be as efficient as you can in the competitive banking world, but it doesn’t cure the long-term issues that have been nagging Citi for years. Cost-cutting is just a component, and a smaller component to that.”

That’s fine but he then went on to hit the nail right on the head: “Fundamentally Citigroup needs to figure out what its real strategy is as a bank…..they have great potential to be that international bank, but what’s lacking is putting together a real coherent strategy around that.”

It has to be a truism that globalising financial services looks easy and, in comparison to manufacturing, pretty cheap. Rent an office, parachute in a few decent chaps from head office, hire some locals to do the leg work, stick a plaque outside the door and you’re away – or so it would seem.

Square pegs

However, sticking pins in a map in the boardroom and wondering why one doesn’t have a presence there yet isn’t much of a business strategy – I worked for Barclays in Switzerland in the early 1980s and apparently that really is what happened and how the branch came to be there. I found out then that international branches spend their lives trying to fit square pegs into round holes.

To some, global means New York, London, Frankfurt, Singapore, Hong Kong and Tokyo. To others it also means Karachi, Kolkata. Sao Paulo, Marseille and Hamburg. There is the corporate culture and there is the local culture and it is a matter of choice to which one ascribes primacy. HSBC prides itself in its ability to match the two but it is not necessarily in the American make-up to be able to achieve that feat.

I spent a large part of my corporate career working for the Americans and was always astonished by how much they struggled to understand that the rest of the world was not simply like home, just in a foreign language. This not only applies to banking but to other financial services and, in fact, probably to most other service industries too. The most serious hindrance is in local regulation and, although it seems to make sense in location, it is enormously difficult to formulate an overarching corporate strategy if it can’t be implemented on the ground. Those who have been involved will know that the last thing one can do is to approach local regulation with something as ridiculous as logic.

Moves to create a single market in financial instruments, such as MIFID, are moving steadily forward but still sit uncomfortably and the single regulatory environment which the Eurozone is pursuing is also running up against all manner of cultural differences. Yes, it will be achieved but it will take a long time for local business culture to adapt - if ever.

But there we are – Citi is not throwing in the towel on global high-street banking but having trained with Barclays International which was present and active in over eighty countries, I know the problems it is facing and having been with the Yanks, I also know how they’d struggle to find the solutions. We’ve accepted that investment banking is inexorably changing – perhaps there is a shift in high-street banking on the way too. 

Is Citi simply the first to blink?

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