“No Rest For The Bank That ‘Never Sleeps'”

by Michelle Tay

March 1, 2009

ONCE vaunted as the “Citi (that) never sleeps”, one of the largest full service banks in the world, Citibank, has been kept awake lately all right – albeit for different reasons in a post-September 15 world.

The financial services sector has virtually collapsed in a heap since Lehman Brothers filed for bankruptcy on Sept 15, 2008.

The US government is spending US$700 billion to purchase assets and equity from financial institutions in order to strengthen its financial sector in the country’s largest financial intervention since the Great Depression.

Citibank’s parent company Citigroup is reeling from the banking crisis as tight credit and tighter consumer spending make bad bedfellows.  Its share price two weeks ago thudded to the ground at US$1.95, after trading around US$50 for most of 2007.  Last Friday, it languished around US$1.50.

And here’s something to set off Rapid Eye Movement: Earlier this month, the embattled banking giant was swindled – by a Nigerian citizen who lived in Singapore and tried to rob the National Bank of Ethiopia of US$27 million.

The fraud was uncovered only after several banks where the conspirators held accounts returned the money to Citibank, saying they had been unable to process the transactions, and an official of the National Bank of Ethiopia said that it did not recognise the transactions, according to the Federal Bureau of Investigation.

Talk about a series of nightmarish events.  To top it off, Citigroup on Friday reached a deal to give the US government a 40 per cent stake in the bank by converting its preferential shares to common stock.

The government will be offered the lowest price given to any private investor for the conversion, and the Treasury will match the private investors’ conversions dollar-for-dollar up to US$25 billion.

In return for the 10 per cent increase in its take, the government is also demanding that the bank’s board of directors have a majority of independent directors – although chief executive Vikram Pandit is expected to keep his job.

Prior to this, Citigroup had already received US$45 billion in US bailout money made up primarily of debt-like preferred shares, plus federal guarantees to cover losses on risky investments totalling US$300 billion. It had also transferred control of its Smith Barney brokerage to Morgan Stanley in return for US$2.7 billion, and has prepared itself for more asset sales by splitting in two.

Citigroup had also hoped to persuade other private holders that bought preferred shares – including foreign government investment funds like the Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation, and the Kuwait Investment Authority – to participate by converting some of their stakes into common equity. But those investors have not expressed an interest in the scheme.

Although the Obama administration says it has no plan to nationalise banks outright, analysts told The New York Times that in the worst-case scenario, the government may eventually break up the company and sell off the pieces. If that happens, Citigroup could end up half of its current size.

Already, The Times of India is saying Citigroup, with assets worth US$1.95 trillion, now values less than the State Bank of India (SBI), India’s largest bank.

Citigroup’s current market capitalisation, at US$13.4 billion, is marginally larger than Singapore’s three local banks: DBS bank’s market cap is S$17.84 billion, UOB’s is $15.5 billion and OCBC’s is $14.1 billion.

Never mind that once, becoming a Citi-banker was the dream of young, ambitious graduates. In the 1990s, Citibank launched a series of ads that sold the idea of easy money through friendly bankers you could phone anytime and old love songs that tugged at your heart – and pocket – strings.

The Citibank Yuppie was represented by good-looking personalities, including local actors Ng Chin Han, James Lye and Wong Li-Lin. (Incidentally, Lye eventually went on to become a Citi banker himself, joining the international personal banking team as product manager in 2000.)

Ten years ago, it was selling the dream.  Today it is selling parts of itself – and even has to bear the indignation of being dubbed S***tybank by some members of the banking fraternity.

But a former employee of Citi Singapore disagrees: “It still is prestigious to work there. Whatever has happened in the US or with the parent company is not a reflection of what’s happening in the local market. The local business is doing very well.”

Citi Singapore has repeatedly communicated to its customers here that the bank remains financially strong and well capitalised, with S$1.5 billion in paid up capital and a total equity of S$3.1 billion.

As a Singapore incorporated company, Citibank Singapore meets all regulatory requirements set by the Monetary Authority of Singapore (MAS). The bank’s Capital Adequacy Ratio (CAR) of 14.2 per cent far exceeds the stipulated requirement of 6 per cent.

Mr Adam Rahman, corporate affairs director of Citi Singapore, said the bank here has “not seen any customer reaction that is out-of-the-ordinary” as a result of the continued bad press Citigroup has received in the US.
He added: “Citi Singapore has been proactively reaching out to customers through multiple channels including customer letters, our websites and our relationship managers, to reassure them about our financial strength and commitment to our business and customers in Singapore.

“We believe that these communication initiatives have been effective in reinforcing customers’ trust in our successful franchise in Singapore.”

Citigroup said last November it would cut 52,000 jobs worldwide by early 2009 in a move to restore profitability and bolster a sagging share price. Citi Singapore is understood to have since let go of about 300 of the 9,000 or so staff that it had here.

One Citi relationship manager, who has worked in the bank for three years, now says staff morale is low, sales volume has dropped and the market is very quiet.

“That said, Citi is a brand name that has a very dynamic company culture and provides good training ground,” she added.

It remains to be seen how the deal between Citi and the US government will pan out. Certainly, nationalising Citigroup outright would be a huge challenge, given the company’s size and international reach.

Moreover, analysts said it could take years for Citigroup to right itself, even with the US government’s help.

Even if Citi never sleeps, it probably wishes this were all just a bad dream.

A slightly edited version of this article was first published in The Straits Times on March 1, 2009.


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