Citigroup May Invest $2 Billion in Asia Consumer Banking

 

Citigroup Inc. (C) may invest as much as $2 billion in its Asian consumer banking unit in the next three years as the U.S. lender overhauls branches and boosts service offerings to the region’s growing middle class.
Citigroup plans to invest $3 billion to $4 billion in its consumer operations, mainly in emerging markets, over the next two to three years, Manuel Medina-Mora, head of consumer banking for the Americas, said on March 24. About half of that amount will probably go to Asia, a person with knowledge of the matter said, declining to be identified as the breakdown isn’t public.

Citigroup, HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN) are among global banks expanding in Asia, where economic growth and wealth creation are outpacing the U.S. and Europe. The Asian consumer banking unit boosted income 52 percent to $2.17 billion last year, making it Citigroup’s second-biggest earner.

“The opportunity is very significant,” Jonathan Larsen, Citigroup’s head of consumer banking for the Asia-Pacific region, said in an April 1 interview. “I think the broad trend will continue, i.e. the growth of the middle class, the increase in concentration of affluent, the increase in growth of consumption.”
Larsen said Asia will get a “significant” portion of the planned consumer-banking investment worldwide. He declined to provide a specific amount. Asia accounted for 46 percent of Citigroup’s consumer-banking income last year.

Smart Branches

The New York-based bank today announced measures to target what it calls Asia’s “emerging affluent” people -- those with net worth of $10,000 to $100,000. Its Citibank consumer unit caters to people with up to $150,000 of net worth. Clients with $150,000 to $1 million of net assets have access to the bank’s Citigold program.

Asia has about 500 million people with net worth of $10,000 to $100,000, and financial-services revenue from that group is forecast to grow as much as 15 percent a year in most countries, Citigroup said in a press release today, citing estimates by Credit Suisse Group AG and McKinsey & Co.
As part of the plan, Citigroup has expanded opening hours at branches in markets including Hong Kong, and will introduce round-the-clock phone banking service and convert more outlets to what it calls “smart branches” featuring teleconferencing equipment and staff using Apple Inc. (AAPL) iPads to display Citigroup’s online services.

“What we are trying to do is to re-engineer the customer experience,” Larsen said. “We’ve tried to make it a much more interactive experience.”

Airport Outlet

So-called smart branches cost about $1 million each to set up, a person with knowledge of the matter said. Citigroup plans to eventually convert all its 720 outlets in the Asia-Pacific region to smart branches, the person said. It currently operates about 40 of the outlets, suggesting the overhaul could cost almost $700 million.

Citigroup’s profit from Asia rose to $4.6 billion last year, accounting for the largest share of overall earnings, according to Bloomberg data. HSBC and Standard Chartered, both based in London, also got the biggest part of their profits from Asia in 2010.

Chief Executive Officer Vikram Pandit is targeting developing countries like China, which overtook Japan last year as the second-largest economy after growing almost fourfold over the past decade.
Consumers in developing Asia may spend $32 trillion in 2030, compared with $4.3 trillion at the end of 2008, according to the Asian Development Bank. Lenders are tapping into that growth by offering credit cards, loans and wealth management services to the region’s swelling middle class.

Citigroup aims to triple the size of its branch network in China to about 100 outlets within three years, Stephen Bird, co- CEO for the Asia-Pacific region, said Dec. 7. The company on March 31 said it opened an outlet in the airport of Chongqing, a city in southern China. It was Citigroup’s first full-service outlet at an airport, according to a press release.