Sanford I. "Sandy" Weill cheerfully admits he's no citizen of the world. "The biggest overseas move I ever made was across the river from Brooklyn to Manhattan," says the 68-year-old CEO of Citigroup (C), the U.S.'s largest financial services group.
Yet in the three years since Weill's Travelers Group merged with Citibank, he has taken his dealmaking skills abroad, supplementing the bank's century-old high end international presence with nearly a dozen more populist buys. On May 17, Citigroup made its most expensive international acquisition yet, the $12.5 billion purchase of Grupo Financiero Banamex-Accival, the holding company for what will now be Mexico's largest independent bank and brokerage.
The deal, which Mexican President Vicente Fox hailed as a milestone for the country's development, underscores what's different about Weill's forays overseas. The bank's 1,353 branches cater to Mexico's middle class and small businesses, while its investment bank and brokerage serve the governments, top companies, and local elites that were the old Citibank's Latin American customers. One key to the deal's success, Citigroup management says, will be using the Banamex name to appeal to the 20 million ethnic Mexicans in the U.S. who send as much as $8 billion home every year.
After the Banamex deal, 25% of Citigroup's $14 billion annual earnings will come from emerging markets, up from just 17% two years ago. Weill's international purchases represent a remarkable cultural and financial transformation for both sides of the Citigroup family. Travelers was an omnivorous buyer of domestic financial companies serving the middle and lower classes, but little of its earnings came from foreign sources. Citibank, on the other hand, was content to grow its top-drawer franchise abroad, and rarely bought a ready-made bank.
SHOPPING LIST. In the past 18 months, Weill's mid-market buying binge has changed all that. Citigroup has bought credit-card portfolios in Britain and Canada; Bank Handlowy, a Polish retail bank; a stake in Fubon Group, a Taiwanese financial-services group; and Associates First Capital Corp., a U.S. consumer-finance company with a big Japanese presence--in addition to Banamex.
Citi is by no means abandoning its high-end customers or its push to build Salomon Smith Barney, now renamed Citigroup, into a commercial and investment banking powerhouse. It bought Schroders PLC, a European investment bank, in 2000. And it is successfully campaigning to lure the rich and the prosperous middle classes in postcrisis Asia to its branches, some of which have been there for a century. Aftertax profits from the Asian retail business grew 60% to $702 million last year, making Asia the fastest growing retail operation for the bank.
In an interview in his Park Avenue office--which features a cardboard fireplace, a nod to the real ones in past offices--Weill says he wants Citigroup to be the most profitable player in any business that it's in, not necessarily the one with the biggest market share. And he wants to spread the full array of U.S.-style financial services around the globe. In Spain, Citi is recruiting nonprofessional agents to sell its Primerica financial products, Avon-style.
In Mexico, says Victor Menezes, Citi's head of emerging markets, the group hopes to build a consumer-finance business--which typically specializes in high-interest lending to people with poor credit--with the help of Keith Hughes, the former Associates CEO, who will serve as a consultant. It's an ambitious goal, and one that will require more than just the acquisition of a few branches. Central to Citi's highly profitable consumer finance business in the U.S. is a computer program that relies heavily on credit scoring, a practice that's in its infancy in Mexico.
Weill's plans to expand credit to the middle market through Banamex faces other hurdles, too. For one thing, Citi is competing with other international banks that may not have its heft but have been there a lot longer. The Banamex deal, for example, gave Citi a slightly bigger market share in Mexico than Spain's Banco Bilbao Vizcaya Argentaria. But BBVA and archrival Banco Santander Central Hispano, which dominate the region, have made a science of buying retail banks in Latin America and making money from them.
Moreover, when volatile emerging markets hit a rough patch, the middle and working classes suffer most. And sophisticated financial services are the least of their concerns. In Argentina, caught in a debt crisis and a three-year recession, cash-poor consumers rely increasingly on barter. And in Turkey, a market Weill says he's eyeing, two financial-market crises and a devaluation since last November have sent small businessmen into the streets and dried up lending.
Analysts say that they've learned never to underestimate Citigroup. But they point out that the bank's international growth isn't matched by an expansion of top executives with foreign experience, with the notable exception of former Treasury Secretary Robert Rubin, now co-chairman. Rubin helped land the Schroders and Banamex deals, but much of the burden for the global push is falling on Indian-born Menezes. He worked abroad for Citibank for most of his career and is one of the few senior people left from the old Citibank. Now he's swamped: The Banamex purchase increased the number of employees reporting to him by 50%, to 82,630. Although the Mexican bank's management remains in place, Menezes will ultimately be responsible for the bank's credit risks and revenues.
HUMAN ACQUISITIONS. Former Travelers executives, meanwhile, are filling in. Jay Fishman, longtime head of the Travelers insurance division, for example, has been given responsibility for Japan and Western Europe. Weill insists that U.S. executives can get the hang of their foreign responsibilities, despite their largely domestic background. "I think it's great if you have the experience of living overseas," he says. "But you can learn a lot by listening to people, talking to people, and traveling a lot." Lately, he has quietly brought in some international brainpower. On May 17, the bank hired Marisa Lago, the U.S. Securities & Exchange Commission's former head of international affairs, as head of its "global workforce," and Richard Small, a former head of enforcement at the Federal Reserve, who will take charge of efforts to prevent money laundering through the bank.
Now that Citi has established a broader footprint in Latin America's most dynamic economy, the question is: where next? Brazil, Turkey, and Korea feature predominantly on his radar screen, according to Weill. But don't expect Citi to keep up the frenetic deal pace, says the ever-diplomatic Rubin. "For us, most of our [future] growth will come organically, not from acquisition," he insists. Not if Sandy has anything to do with it.
Corrections and Clarifications
In "Sandy Weill wants the world" (Finance, June 4) about Citigroup, Poland's Bank Handlowy was described as a retail bank. It is both a corporate and retail bank. In the accompanying table, Bank Handlowy's price should have been $1.2 billion.
By Heather Timmons in New York, with Geri Smith in Mexico City, Frederik Balfour in Hong Kong, and bureau reports