Singapore: Citigroup said on Friday it plans to start equity brokerages to serve institutions in Malaysia, Vietnam and Indonesia, and is seeking more branches in Thailand in a bid to expand its business in Southeast Asia.
The moves are a sign that the US bank, which has been hit by massive losses in the United States due to the collapse of the housing market, is betting on Asia to boost its international business.
“Our current focus is to invest all across the region,” Piyush Gupta, who heads Southeast Asia and the Pacific region for Citigroup, said.
“We have been through two major downturns in this region, one in 1997 and then during the SARS (outbreak in 2003). We didn’t choose to scale back during these periods.”
Gupta said the equity brokerages in Southeast Asia will serve institutional clients and help boost its capital market business.
“We are doing more capital market activities now than we did anytime during the last several months,” Gupta said.
Citigroup was among underwriters for DBS’s $4 billion ($2.60 billion) rights issue and is advising Chartered Semiconductor on its $300 million share sale.
In January, Citigroup agreed to merge its Smith Barney brokerage with Morgan Stanley, but in Asia many of Citi’s brokerage units are part of bank.
Gupta said Citi was keen to add to its single branch in Bangkok and was in “active dialogue with the regulators” about expanding its operations in Thailand.
He said lending to Southeast Asia, Australia and New Zealand saw marginal growth in 2008 and might remain flat this year as trade financing suffers from a downturn in exports and consumer demand.
“This year would be flat as well, it has grown in the first two months, but the growth is marginal.
“The reason we weren’t able to do as much trade finance was because exporters’ demand vanished. People didn’t want to borrow money because their export orders from the U.S. and China were collapsing since September-October.”
But the slowdown in the two segments will be balanced by rising demand in Asia to refinance debt and loans, and corporate lending and underwriting share sales.
Gupta said the turmoil in global markets has badly hit the wealth management business after the collapse of Lehman Brothers in September. Fees and commissions from sale of wealth management products slumped 60-70% in the fourth quarter and stayed poor in the first quarter in the region, he said.
“The whole wealth management space is seeing a sharp slowdown. In the fourth quarter, it crashed to about a third of its business,” he said.
“People are not buying wealth products and their net worth has shrunk because of the markets.”
The US lender has received two federal bailouts, $45 billion of capital from the Treasury Department’s Troubled Asset Relief Program, and a government agreement to cap losses on $300.8 billion of troubled assets.
Last month’s bailout would make the government Citigroup’s largest shareholder, with a potential 36% stake. The Government of Singapore Investment Corp (GIC) is the second-biggest shareholder in Citi with an 11% stake.
Gupta said 80% of Citicorp’s business comes from its international units, so it was crucial the U.S. bank grows outside its home market.
But Gupta said it would be difficult to do acquisitions this year, given five quarters of losses suffered by the group.
“It is unlikely that we will be a big buyer this year, which is why the thrust of our ambition is really organic,” he said.
He said the bank continues to grow in Asia, where its loan-to-deposit ratio is in the mid-60s, meaning it had the ability to grow its businesses through its own resources and without having to raise funds.
In the United States, many banks have total loans that far exceed their deposits.
“As Mark Twain would put it, reports of our demise are greatly exaggerated,” Gupta said.