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Why Citi Can't Be a Global Universal Bank

by: Felix Salmon May 12, 2008 | about stocks: C    
Felix Salmon

Felix Salmon

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Vikram Pandit still needs to do some work on the Vision Thing, I think. His big idea, as unveiled on Friday? Citigroup (C) is - wait for it - a "global universal bank." At this point, he's perilously close to a tautology masquerading as a strategy.

"Global universal bank," as a concept, is not entirely meaningless, however. It's just impossible to achieve.

A universal bank is a soup-to-nuts operation, something which provides banking services to everybody from cash-poor individuals to huge multinational corporations. And there are a few national universal banks: Deutsche Bank (DB) in Germany, for instance, or UBS (UBS) in Switzerland. Even Citigroup can be considered a national universal bank in Mexico.

But in the US, there aren't any universal banks. If you just got back from the Berkshire Hathaway AGM, for instance, you might have noticed that there is no Citibank in Omaha. Look down the ten largest corporations in the US, according to Fortune, and one of them is Citi; of the other nine, four are in places without a Citibank. And that's not just because some of them are based in obscure places like Bentonville, Arkansas; huge cities like Detroit and Seattle have no Citibank.

If you can't even be a universal bank in the US, it's a bit silly to suppose that you can be a universal bank globally. Besides, Pandit is considering selling off Citibank Germany - how can you be a global universal bank without retail operations in Germany? But then again, Citibank doesn't even have much in the way of a retail presence in the UK, either: it never seems to be able to make up its mind whether it actually wants to do retail banking in much of the world. Poland, yes; Mexico, yes - but those two were by acquisition. And when Citi did have a strong organically-grown local presence, like it did in Paraguay, it sold most of its branches to ABN Amro.

In order to come close to being a global universal bank, Citi would have to grow a lot - probably by an order of magnitude. And long before it got there, its regulators would step in to stop it getting any bigger. But in any case, it's shrinking. It needs to work out what it's going to concentrate on, and do that very well. And deciding that it wants to be a "global universal bank" is not a useful way of doing that.

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This article has 6 comments:

  •  
    May 12 08:44 AM
    Citi is not even a statewide institution. In 2006 Citi sold its upstate banks to M&T, effectively leaving Buffalo and Rochester, the #2 and #3 cities in New York State.
    Reply
  •  
    May 12 08:57 AM
    Felix,

    If Citi spins off the businesses now, citi would be selling the businesses for less. You cannot make hasty changes without looking at the whole picture.
    The idea of offering universal banking is sound. Citi has a very good franchise globally compared to anyone in the world. Dont look at the world from the eye of what works / does nt work in US will not work elsewhere.

    The reason why there is no universal bank in the US is by the design of US regulators early on - not to build a monopoly. That is the reason why you had regional banks which were quite huge. In the last 10 years, there has been deregulation and some of the banks are expanding their presence in the US (BAC, JPM) while others like (Citi) are expanding globally.

    The reason why Citi failed is because of its inability to transform the vision into reality and another reason was there was no burning platform to necessitate change. Given the mortgage crisis, now there is a change in CEO and I hope there is a change in Board as well. Allow Vikram Pandit to evaluate the business concept as whole and fix the businesses, cut costs, increase the value of each operations and decide whether to spin off the business based on strategic value to the future of the business
    Reply
  •  
    May 12 08:59 AM
    I was a Citi customer in NYC and have been for years. When I went to Czech Republic for a work assignment I was pleasantly surprised to see a Citi in Brno, where I'd be based. When I opened the account I had hoped to link my US Citi account and my Czech Citi account - no dice. I also thought it would be easier to transfer between the two accounts - no dice. So if Citi plans to do this great, but they need to start with the basics.
    Reply
  •  
    May 12 10:27 AM
    You are still stuck in the 20th century. The future of financial services does not lie in the former First World but in the former Second and Third World. This is where a huge number of people are coming out of the poverty and are developing an appetite for financial services for the first time ever. The battle for a universal bank will be fought there, not in Omaha or Upstate New York. US Retail banking is hardly a growth industry. Citi is a brand which is recognized at the ground level in a lot of countries which you may have never visited. Can you say the same about JPMorgan or BofA?
    Reply
  •  
    May 12 10:43 AM
    Felix, in your first criticism, it sounds like you are interpreting 'universal' as 'omnipresent'. I don't think you need to be in every big US city to be considered 'universal'. To me, it just means that you have enough retail operations to be substantially consumer deposit-funded. In the same spirit, being a 'global' universal bank doesn't mean that you are in every big city in every country. It simply means that you are able to conduct and facilitate business globally, having a non-trivial presence across most products. I don't think it means you have to deliver everything to everyone (a 'God' bank). Cheers
    Reply
  •  
    May 13 07:57 AM
    Corossis is right on...universal is not a geographic concept but a paradigm of "selling" funds via managing risk and having an in-house source of funds to sell/lend. Detche bank isn't everywhere and even Felix admits it's a or close to a universal banking model.

    Reply
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