CM – Citigroup must tear the bandage off

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It won’t be cheap for

City group

2.18%

to get out of South Korean consumer banking. That doesn’t make it the wrong step.

As part of the Chief Executive earlier this year

Jane Frasers

Strategic refresher in pursuit of higher returns, the bank announced that it would move away from retail banking in 13 markets in Asia, Europe and the Middle East. On Monday, Citigroup set out the cost of the bank to dismantle its South Korean consumer banking unit instead of selling it. Due to costs related to downsizing there, the bank expects cash costs of $ 1.2 billion to $ 1.5 billion on Monday.

It would have been nice to be able to sell the business, as the bank did in other markets, and Citigroup stock is already outperforming US banks this year. However, this shouldn’t put off investors looking to bet on better days in the future. Once the deal is fully closed, a process expected by 2023, approximately $ 2 billion in tangible capital is expected to be released. This is part of roughly $ 7 billion in capital that is expected to be freed up overall by exits from consumer banking.

That capital can be returned to shareholders over time or used in core businesses like local transaction banking or wealth management in hubs like Singapore or Hong Kong. And that translates into a higher return on tangible capital – the most important metric that many Citigroup investors focus on.

In a way, the fact that getting out of a local retail market isn’t cheap reinforces the original reasons for the exits. Retail banking can be a very good deal that brings in cheap deposit funding. However, keeping up with the digital banking trend will require major investments, including costly dismantling of physical branches and their staff, which may ultimately not be worth it.

Meanwhile, the leaner of the bank’s global operations and the Focusing on your strongest businesses the way you want. Asset management in Asia can produce great returns, but it is not an easy money pot. Many of the largest banks in the world are banking on the region’s potential, especially China. Citigroup has a lot to do with that.

Many investors are likely still waiting for more strategic benchmarks to be set on the bank’s highly anticipated Investor Day in March before placing big bets. So now is a good time for the bank to get some of the tough parts done.

Appeared in the print edition of November 9, 2021 as « Citigroup Has to Rip Off The Bandage ».

Keywords:

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