BUSINESSWEEK ONLINE : FEBRUARY 26, 2001 ISSUE
INTERNATIONAL -- FINANCE Citibank Conquers Asia (int'l edition) How the U.S. giant turned crisis into huge business In May, 1998, Jakarta was smoldering. Mobs had just toppled President Suharto. Indonesia's wealthy ethnic Chinese had left the country, and most foreign bankers had fled with them. But Simon Williams, the head of Citibank's Asian retail business, did just the opposite, flying in from his plush Singapore office to Jakarta to plot strategy with local consumer-banking manager Barry Lesmana. Citi temporarily shut its Jakarta branches, but a skeleton staff at the heavily guarded Grand Hyatt Jakarta kept cash machines and electronic-payment systems operating. Meanwhile, at Singapore airport, where many middle-class Indonesian refugees landed, Citi staffers greeted them with placards reading ''Citibank Will Help You. Come Here!'' Many responded--and opened accounts on the spot. Violence gripped Jakarta long after that. But in the weeks that followed, Williams and Lesmana strolled the streets, dressed in jeans and T-shirts to deflect mob attention, and scouted possible branch sites. Taking advantage of liberal new bank rules, Simon and Lesmana signed leases for 61 branches, most the size of a public rest room--enough to accommodate an ATM and an attendant. Smart move. The number of accounts rose 300% from 1998 to 1999; most were opened by upscale Indonesians leery of local banks. Citi earned a 100% return on its $10 million investment in the new branches in their first 12 months in operation. ''OPPORTUNITIES BEYOND BELIEF.'' In an environment that most saw as a wasteland, Citigroup's retail-banking arm boldly went after new business. That kind of daring has paid off across Asia. The U.S. bank has expanded in the region more rapidly than any other big foreign institution, and its Asian operations are stronger three years after Asia's economic meltdown than they were before. ''Sometimes, when an economy is under the most stress, you get presented with the biggest opportunities,'' says Citigroup Vice-Chairman William R. Rhodes. That's what Williams found out. When Citibank asked him to run its Asian retail business in early 1997, the 43-year-old Briton didn't suspect the challenge ahead. Booming Asia was an easy market for the elite brands and upscale services that the group had offered well-to-do Asians for decades. ''It was simply all about growth,'' recalls Williams, who was chief executive of GE Capital Fleet Services in Brussels when he joined Citi. The crisis that rocked Asia for the next two years left Williams with few rosy notions about his new job. But under him, Citibank's retail unit scavenged everything from collapsed property markets to floundering Asian banks, poaching staff and customers. Far from fleeing Asia's crisis, Citi invested more than $200 million and opened 74 branches in eight countries. ''The crisis gave us opportunities that were beyond belief,'' says Frits Seegers, Williams' second in command, who is based in Tokyo. Those investments are paying off. Today, 10.9 million Asian residents hold Citi savings accounts. The number of credit card accounts has doubled since 1995, to 7 million. That makes it the region's largest credit-card issuer, followed by Standard Chartered Bank PLC of London and HSBC, its two big Asian rivals. In the downturn of 1997 and 1998, Citi's aftertax retail-banking profits in the Asia-Pacific region, which includes Japan and Australia, fell an average of 11% per year--a modest figure, given the adverse conditions. But by 1999, they had rebounded 15.6%, to $443 million, and last year they grew 58.5%, to $702 million, on revenues of $2.8 billion. The profit recovery makes Asia Citi's fastest-growing region for retail banking, surpassing even North America, where aftertax profits rose 42%. Another bellwether, the level of troubled consumer loans for Citibank in Asia outside Japan, fell 24% from 1999, when they were still at crisis level. In Japan, meanwhile, Citibank is growing wealthy off consumers' anxieties. Scared by reports of shaky local banks, wealthy Japanese savers are shifting their money to the U.S. behemoth. Citibank's retail-bank earnings in Japan shot up 94% in the fourth quarter and 60% in 2000, to $139 million. That's 20% of regional profits. Deposits were $13.9 billion as of December, and Citibank Japan Chief Executive Seegers sees 25% to 30% annual growth in the years ahead. ''Many customers view us as a relatively secure bank,'' Seegers comments tactfully. Still, growth won't come as easily in the near future. Japanese banks are catching on to the idea of service. And Citi has caught flak for slow processing of new accounts and 20-minute waits on the phone to convert currency, problems the bank says it's addressing. Citibank's closest competitor, Standard Chartered, has also tried to use the crisis as a springboard. John Lorimer, head of consumer credit at Standard Chartered in Singapore, insists his bank has done as well as Citi. But its numbers from the past few years are unconvincing. Analysts estimate that SC's Asian consumer business earned about $400 million in pretax profits--about 55% of Citi's aftertax profits--in 2000. Before the crisis, banks in Asia, including Citi, used the top local bank as a benchmark, says Wanna Matanachai, Goldman, Sachs & Co.'s Singapore-based bank analyst. Today, he says, ''Citibank is the benchmark.'' Will Citi keep it up even if Asia has another downturn--a likely scenario, given Japan's problems and the U.S. slowdown? Williams doesn't expect the worst, but he could handle it. This year, he expects that Asian retail aftertax profits will grow more than 15%, exceeding Citigroup's target for emerging markets worldwide. Asian retail revenue will grow more than 20%. ''Credit costs have been brought down. Our collection processes are better,'' he says. ''The downside is that you have more volatility. You have to deal with it. I'm confident we're more prepared.'' Citi is now positioning itself to offer consumer banking in China and Vietnam when those markets open up. How did Citi make its bet pay off? First, it avoided takeovers of problem banks. And it set its sights on wealthy Asians who could keep balances of $100,000 to $3 million. They number about 1.7 million, says a May, 2000, report issued by Merrill Lynch & Co. and Gemini Consulting. Citibank officials cringe at the idea that their Asian success is built on capital flight. Instead, they say, clients fled to quality. A REASSURING IMPRESSION. Indonesia was the model. A pioneer in the Indonesian credit-card business, Citi knew that plenty of Indonesians preserved their wealth through the crisis, but needed accommodation. It lowered minimum deposit rates and cut the salary requirements to qualify for a credit card. Its share of the credit-card market is now up from 40% to 42%. The bigger branch network gave the reassuring impression of a greatly expanded Citibank presence--even though 54 of the 61 new outlets opened in April, 1999, consist only of an ATM, a special phone for remote banking, a self-service passbook printer, and an attendant's desk. Not much. But it kept costs down and helped encourage remote banking, another Citi priority. Citi now has new branches in most Asian capitals. Though the goal is to encourage remote banking to free up staff for marketing, there's plenty of hand-holding for the affluent. In Hong Kong, Danny Liu, head of consumer banking, is in charge of recruiting clients. In January, 1999, he opened two branches decorated entirely with the gold carpets and varnished woodwork of the Citigold ''priority-banking lounges'' that are tucked away in the corners of regular Citibank branches. In the new facilities, customers with less than $100,000 in assets are politely shown the door. ''Relationship managers''--attractive women who handle low-end private-banking clients--show desired customers in. Bankers not only take regular deposits, they also sell Salomon Smith Barney mutual funds and other Citicorp products, an area where sales have boomed, to $8 billion in 2000 vs. only $1.8 billion in 1996. Having snared the top market share for foreign banks in Asia, Citibank is on the lookout for its next big target. The most tempting: China. Citibank now does scant business there. Its corporate income in China is one-fifth that of Korea, and its retail business consists of little more than five ATMs in Beijing and Shanghai. Under China's World Trade Organization agreement, the Beijing government has agreed to allow full-service branches within five years. ''Then the retail business will grow at a much faster rate than that of the corporate bank,'' says Stephen H. Long, executive vice-president and Asia-Pacific group head of Citibank in Hong Kong. To date, the only place Citibank has found itself playing catch-up in consumer banking is in Hong Kong, where HSBC, which has 200 branches to its 19, has aggressively adopted a version of its Citigold service. In January, 1999, Citi launched a counteroffensive, and has since boosted the Citigold customer base by 138%. EMBARRASSING CLIENTS. Citibank's Asian adventure isn't an unqualified success. The $5 million iCard experiment, a Web-based Visa card launched in Australia in 1999, hasn't caught on. And given corruption in Asia, Citi's appeal to the wealthy has inevitably lured embarrassing clients, such as Joseph Estrada, who was ousted as President of the Philippines in January after revelations that he and his wife had nearly $3 million in Citibank accounts in Manila. Then there are the potential repercussions of a U.S. slowdown. Still, Citibank has established its franchise so well that local banks admit its name carries more resonance than theirs --even with those who can't afford its services. Singapore-based UOB Bank recently purchased Radanasin Bank in Thailand. ''Most Thais would never have heard of UOB, but they would have heard of Citibank,'' Sim Puay Suang, an executive vice-president at UOB, ruefully admits. Cheer up, Mrs. Sim. Citibank gives you something to aim for. By Michael Shari in Singapore, with Brian Bremner in Tokyo, Heather Timmons in New York, and Becky Gaylord in Sydney _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Citibank Conquers Asia (int'l edition) CHART: Citibank Sells Safety in Asia INTERACT E-Mail to Business Week Online

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