Insight: Citigroup's crown jewel is losing some luster
By David Henry
NEW YORK (Reuters) - Citigroup may be losing ground in a business that is central to its recovery plan, as rivals catch on to how much money the unit makes.
The bank's transaction services unit, which moves $3 trillion around the world daily for companies, banks and national governments, received scant attention from competitors and investors for years. But it has done wonders for Citigroup: About a third of its profits since the financial crisis have come from the unit. Best of all, the business used little capital at a time when the bank - which required three rescues during the credit crunch - had little to spare.
With regulators pressing banks globally to find more capital to support most traditional lending and trading businesses, transaction services suddenly look more interesting to competitors.
JPMorgan Chase & Co (JPM.N: Quote) and Bank of America Corp (BAC.N: Quote) have made transaction services a priority in the past two years, and have hired key senior executives from Citigroup. Regional banks such as Singapore-based DBS Group Holdings (DBSM.SI: Quote) and Australia and New Zealand Banking Group (ANZ.AX: Quote) have ramped up their efforts, too.
There are early signs that rivals are eroding some of Citi's profits. In the treasury and trade part of the business, which is most directly comparable to other big banks' business lines, Citigroup's revenue fell 5 percent in the first quarter from the same quarter last year, while Bank of America's dropped 3 percent and JPMorgan's slipped a fraction of a percent. Competitors don't disclose profit for their units, but Citigroup's pretax income for transaction services fell 8 percent in the first quarter, one of the biggest drops since the financial crisis.
The percentage of large corporations using Citigroup for cash management slipped in Europe and in the United States from a year earlier, according to recent surveys by consulting firm Greenwich Associates. And in the United States, prices for many transaction services are dropping, reflecting competitive pressure.
"Other participants in the market have woken up to the potential of this business," said Citigroup's Naveed Sultan, global head of treasury and trade solutions, which is the biggest part of Citigroup's transaction services segment.
Transaction services include a wide array of products, but the business boils down to collecting deposits and transferring money, processing transactions and providing trade financing and other forms of secured lending. Microsoft Corp (MSFT.O: Quote), for example, uses Citigroup to help collect excess cash from more than 350 subsidiaries in 100 countries and put the money into central treasury accounts. The U.S. government uses Citigroup to help process passport applications and remit application fees. Continued...