Has Citigroup Inc. finally found a strategy to hang its hat on?

It has only been a few months since Chief Executive Vikram Pandit started referring to the company as "America's global bank," and already the numbers are cooperating with the image.

Asia and Latin America generated more than 70% of Citi's income from continuing operations last quarter. Those were the regions where the company managed to increase revenue year-over-year in its consumer banking and transaction services businesses, and where it saw the sharpest improvements in net credit losses and loan-loss reserve levels.

Of course much of the good news abroad stemmed from an economic recovery that has been surer and swifter than in the United States. But Citi, a company that has struggled to redefine its mission since abandoning the financial supermarket strategy it popularized more than a decade ago, promises that its "global bank" strategy is more farsighted than that.

"Our belief is born out of what we think are some rather specific long-term trends," Chief Financial Officer John Gerspach told reporters on Friday. "GDP in emerging markets is certainly going to grow at a faster pace than GDP in the developed world; right there, that offers you a little bit more of a growth advantage."

Citi also predicted a fuller decoupling between emerging and developed economies, with developing countries trading more amongst themselves. This would insulate them from the fortunes of developed nations. It could also increase payment flows between emerging-market regions, Gerspach said.

Citi's geographic diversity — it operates in 140 countries and has relationships with most of the top global companies — has long been considered a key advantage for the company in businesses such as global transaction services, which contributed $2.5 billion, or 11%, of Citi's $22.1 billion in revenue last quarter. But it is only recently that the company began touting its international reach in slogan-like fashion.

In a January press release announcing the promotion of its Latin America CEO, Manuel Medina-Mora, to CEO of consumer banking for the Americas, Pandit declared that "our new model — a global bank for businesses and consumers — has been successfully implemented under [Medina-Mora's] leadership in Latin America."

By April, the message had been refined, with Pandit announcing in the company's first-quarter earnings release that the results had "given us the best glimpse yet of the potential of 'America's global bank.' "

In the follow-up glimpse provided by Friday's second-quarter earnings release, the international focus continued to look sound.

Compared with the year earlier, consumer banking revenue rose 9% in Latin America and 10% in Asia, more than offsetting declines of 3% in North America and 5% in the Europe-Middle East-Africa, or EMEA, region. On a global basis, consumer banking revenue rose 2% from a year earlier, to $8.03 billion.

The trends were similar for transaction services, with revenue rising 5% in Latin America and 6% in Asia while falling 3% in North America and 1% in the EMEA region.

But overseas markets were hardly immune to the widespread fall-off in investment banking and securities revenue, as a sharp increase in volatility — much of which arose from the Greek debt crisis and broad concerns about the health of European banks — steered clients away from the global equity markets.

Compared with the second quarter of 2009, securities and banking revenue dropped by double-digit percentages in every region outside North America, but North American revenue, to the surprise of most analysts, jumped a better-than-expected 53%.

That increase, plus a $1.5 billion release of loan-loss reserves, helped Citi post net income of $2.7 billion, or 9 cents a share, beating the 5-cent average of estimates by analysts in a Thomson Reuters survey.

"Overall, we would judge [the second quarter] a success for Citi, as it successfully navigated what became much more treacherous markets," analyst Guy Moszkowski of Bank of America-Merrill Lynch wrote in a research note to clients.

It was the second straight quarter of profits for Citi and the fourth consecutive drop in its net credit losses. Total NCLs were $7.96 billion, falling 5% from the previous quarter and dropping more than 30% from the year-ago quarter, when NCLs had ballooned to nearly $11.5 billion.

A shrinking loan book helped the company step up its reserve release, which was much larger than the $53 million reported for the first quarter. Promising credit trends in the cards business also were a factor.

Mortgages remain a major concern. Sales of delinquent home loans and successes in home loan modifications led to improved NCLs for the North American mortgage book. However, "the underlying credit quality of this portfolio has not been improving in the same manner as the cards portfolio," Gerspach said.

That cautious sentiment regarding mortgages helped drag down Citi's shares by 6.25% on Friday, to close at $3.90.

If the weakness in mortgages persists, Citi's operations overseas should help shoulder the burden. The company expects credit trends to keep improving outside the U.S., albeit at a slowing pace.

Citi's international scope also should help deflect two other headwinds at home: weak loan demand and the cost of new regulations.

Asia was a bright spot for second-quarter consumer loan demand, said Gerspach, who described demand in Latin America as "spotty, but there," while the U.S was "somewhat flattish." On the corporate side, "it's pretty flat everywhere," he said.

Executives were coy about the potential cost of U.S. financial reform, saying the true effects could not be estimated until regulators figure out exactly how to implement the legislation's aims. Pandit said the company should be well insulated from overdraft fee and debit interchange measures, arguing that neither area had been a significant source of fees for Citi. He also said the company has been selling many of the proprietary trading and hedge fund businesses that it would have to divest under the new rules. Analysts generally agree, however, that the company, like its peers, will take a hit to the bottom line.

"We project lower banking fee income due to new rules," Standard & Poor's equity analyst Matthew Albrecht wrote in a research note, "but the firm's global footprint should help mitigate the impact."

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