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Exclusive: Citigroup may exit consumer banking in more countries

People exit a Citibank branch in New York, October 16, 2012. REUTERS/Keith Bedford
People exit a Citibank branch in New York, October 16, 2012. REUTERS/Keith Bedford

By David Henry

NEW YORK (Reuters) - Citigroup Inc is looking to pull out of consumer banking in more countries in an effort to lower costs and boost profits, according to two people familiar with the matter.

In December, Citigroup said it was withdrawing from consumer banking in five countries - Pakistan, Paraguay, Romania, Turkey and Uruguay - as part of an expense reduction plan that will save $1.1 billion a year and eliminate 11,000 jobs. The cuts were one of Michael Corbat's first major steps as chief executive, a position he took in October.

"There is more on the list," said a source familiar with the situation.

The bank has been looking for months at countries, customer segments and products to cut, the source said, but declined to name any of the additional countries.

Sean Kevelighan, a Citigroup spokesman, said the bank is focused on major cities with the highest growth potential for its consumer business and will continue to invest in its franchise and optimize its assets.

Citigroup is one of the most international of U.S. banks, serving consumers in 40 countries out of the 100 in which it has some kind of presence.

Any cuts would likely represent a paring of the portfolio rather than a complete rethinking of the bank's commitment to global consumer banking.

Outside the United States, just three countries - Mexico, South Korea and Australia - account for half of the company's loans to consumers and the bank's presence in many other countries is tiny.

Investors said scaling down in some markets makes sense.

"If they're not going to have a significant presence, they shouldn't be there," said Mark Mandell, portfolio manager at Dalton Investments, which has $1.8 billion under management and owns Citigroup shares.

Selling any of the foreign assets now would be tough. Other lenders around the world have also been closing foreign outposts and buyers can be hard to find. London-based HSBC Holdings Plc, for example, has sold more than 40 businesses and other assets, such as credit card portfolios, globally since 2011, but it has sometimes been a struggle to get the prices it wanted.

Citigroup has some extra complications, too. The bank is using about half its capital to support bad assets and tax benefits related to its huge losses during the financial crisis.

Speaking on a conference call with analysts and investors earlier this month, Corbat said he intends to make regular assessments of "how and where and with whom" the company generates revenue, so the process of cost cutting is more "BAU," or business as usual, instead of a one-time event.

Analysts unsuccessfully pressed Corbat to give more detail about which other countries he might focus on to cut costs.

Corbat, who previously oversaw company operations in Europe, the Middle East and Africa, said that, over time, managers in different countries tend to expand by veering into tangential businesses and end up saddling the company with extraneous and inefficient operations. Other executives at the bank have made similar complaints in the past.

BANAMEX CONUNDRUM

One of the most radical alternatives Citigroup executives have discussed in the past is spinning off its Banamex unit, the second-biggest bank in Mexico, in a public stock offering there. Mexican regulators would likely allow a standalone Banamex to operate with less capital, which would increase its profitability, one of the sources said.

But Banamex is already highly profitable and has a good market position. Selling it would slow Citigroup's efforts to build capital, undercut its strategy of investing in emerging markets and would also mean parting ways with Banamex head Manuel Medina-Mora. Corbat recently named him co-president of Citigroup, which many inside the bank viewed as a sign he is an important part of the new management team.

The global operations long have been both a blessing and a burden for company executives.

Being in many different countries gives the company valuable name recognition and an edge in winning and keeping customers for one of its crown jewels, the Transaction Services unit that moves money internationally for businesses and governments.

But being in so many countries also means its operations are far-flung and subject to myriad local laws and customs. Those problems tend to be greatest in the consumer business. It is harder for the company to capture enough revenue to sufficiently exceed the costs of running branches, a payments network and offering products, such as credit cards.

Two-thirds of the 40 countries where Citigroup does consumer banking provide no more than $2 billion of loans each toward the company's $1.86 trillion in assets. Those small operations include Argentina, Thailand and Russia.

Citigroup's Brazilian unit plans to sell its Credicard consumer finance unit as part of an effort to focus on the most profitable areas, according to a report on Wednesday from newspaper Valor Economico, which did not say how it obtained the information. A Citigroup representative declined to comment.

For the consumer businesses to succeed, Corbat said earlier this month, they have to be capable of being served by common systems for lending, issuing credit cards and opening accounts.

The U.S. consumer bank is also a thorny question for Citigroup. It has much smaller operations in retail banking than many rivals - just about 1,000 branches, less than one-fifth as many as JPMorgan Chase & Co Bank of America Corp and Wells Fargo & Co.

Normally, a bank with a relatively small business might look to sell it, but shedding good assets in the United States is particularly difficult for Citigroup, because the bank needs taxable U.S. revenue to benefit from the nearly $50 billion of deferred tax assets that it has on its books.

(Reporting by David Henry in New York. Additional reporting by Steve Slater in London; Editing by Dan Wilchins, Martin Howell and Andre Grenon)

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