Citigroup (C) Expects Growth in Spain through Bond Markets
After vending numerous branches in Spain as part of the restructuring initiatives announced in Mar 2013 by Mike Corbat, the chief executive officer (CEO) of Citigroup Inc. (C), the bank is now looking to earn revenues from bond sales management and share offerings in Spain, per a Bloomberg report. The bank expects 5–10% revenue growth in Spain in 2015.
Notably, following the financial crisis, lending decreased thus leading European companies to approach bond markets for funding. Therefore, bond issues at Spanish companies reflected 54% growth from 2010, while bank lending declined 24% in Sep 2014 compared with 2010.
Spain contributes a significant portion of Citigroup’s overseas revenue within Europe, the Middle East and Africa. According to Country Officer – William Van Dyke, 2015 will be prosperous for equity markets experiencing capital increases and accelerated equity offers.
Notably, Corbat’s plan involved restructuring, reducing or exiting some of the operations in 21 markets globally to enhance returns. It was intimated that most of these involve consumer businesses.
Therefore, with the ambition of achieving financial targets in 2015 by restructuring the business, Citigroup retreated from consumer banking business in slow-growth markets including Japan, Egypt and Hungary. Notably, in Jun 2014, the bank, in an attempt to streamline its international operations, announced the divestiture of consumer banking business in Spain to Madrid-based Banco Popular.
The sale of Citigroup’s Spanish business included $3.2 billion in assets under management, GAAP assets of nearly $2 billion along with $2 billion in loans and $2.8 billion in deposits. Further, 1.2 million customer accounts, 45 branches and ATMs as well as roughly 950 employees were transferred to Banco Popular.
Concurrent with the third-quarter 2014 earnings release in October, in continuation of the streamlining of its international operations, Citigroup also announced “strategic actions.” The company stated that it proposes to exit the consumer banking business in 11 markets. The global footprint will now cover 24 markets that represent more than 95% of Global Consumer Banking’s (:GCB) current revenues.
The 11 markets include Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary and Japan. Citigroup expects to significantly complete its strategic actions by the end of 2015. The move comes in line with the company’s strategy to focus on markets where it has a strong presence and long-term growth prospects.
Now, Citigroup is strategizing to capitalize on Spain as the country is gradually recovering from the two-year recession and a sovereign debt crisis. Further, Spain’s economy has also reflected growth for five consecutive quarters, which benefited Citigroup’s investment and corporate-banking units in Spain.
Precisely, Citigroup’s private bank unit in Spain working with clients having at least $25 million in assets for investment has recorded revenue growth of 10–19% annually for the past seven years. Further, Citigroup recorded $75 million in fees from investment banking in the first nine months of 2014 in Spain, depicting 5.6% market share.
Among peers, Morgan Stanley (MS) holds 8.1% market share in Spain, followed by 7.4% share of Spanish bank Banco Bilbao Vizcaya Argentaria SA (BBVA) and 6.3% share of Banco Santander SA (SAN).
Conclusion
Amid troubled tides, while Citigroup is encountering issues from various fronts including the ongoing investigations related to the Mexican fraud and the Federal Reserve’s rejection of its 2014 capital plan, the business in Spain will give the company some financial flexibility.
On the capital front, Citigroup is working to improvise the loopholes of the rejected 2014 Capita Plan and is preparing for the 2015 Capital Plan.
We believe the company is well positioned to resolve its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will bolster the company’s capital position, reduce expenses and drive operational efficiencies.
Citigroup currently carries a Zacks Rank #3 (Hold).
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