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Citigroup Asia Fees Rising as Debt Sales Counter Equity Drop

Citigroup Inc. (C) is boosting revenue at its corporate and investment banking unit in Asia with rising fees from debt underwriting and cash management as initial public offerings shrink.

Revenue at the division is up 15 percent to 20 percent this year from the same period in 2011, Farhan Faruqui, head of Citigroup’s global banking operations in the Asia-Pacific region outside Japan, said in an interview.

Demand for the services such as hedging foreign-exchange risk is increasing as companies in Asia move to protect themselves against a worsening debt crisis in Europe, Faruqui said. Stock and equity-linked sales in the Asia-Pacific region have fallen as market swings derailed IPOs, prompting companies to issue more debt.

“The debt market has been buoyant, and that’s been helping in terms of offsetting some of the reduced equity activity,” Faruqui said. “In a capital-constrained world, you want to be looking at the entire range of options.”

Sales of bonds denominated in dollars, euros and yen have reached $202 billion this year in the Asia-Pacific region, a 21 percent jump from the same period of 2011, data compiled by Bloomberg show. Meanwhile the value of IPOs dropped to $18.2 billion from $45 billion.

‘Episodic’ Business

Securities firms have suffered as speculation mounted that Greece would exit the euro and Spain was forced to seek a bailout of its banks. Revenue from investment banking and trading at U.S. firms may fall at least 30 percent this quarter from the previous three months, Richard Ramsden, an analyst at Goldman Sachs Group Inc., said in a note this month.

Bundling investment banking services such as mergers advisory and equity underwriting with lending, trade financing and cash management helped New York-based Citigroup soften the impact of the drop in IPOs, said Faruqui. That model “allows us to cope through volatility,” he added.

Citigroup’s revenue from securities and banking operations in Asia rose 17 percent to $1.2 billion in the first quarter, while profit jumped 46 percent to $307 million, according to the company. The bank doesn’t break out regional earnings for the corporate and investment banking business.

“The problem is that underwriting and M&A are episodic at the best of times and, in these times, rare,” said Philip Keevil, a former head of European mergers at Citigroup who is now a partner at Compass Advisers Group LLC in New York. “Citi has a constant interface with its clients via treasury services, whereas in the pure investment banking model, bankers have to make excuses to meet their clients in between deals.”

Client Meetings

Faruqui said he’s hired 35 managing directors and directors in the past year, half of whom are investment bankers. His unit now employs about 200 bankers.

Faruqui, 47, took up his current position in 2009 after running corporate and commercial banking in the region. About 18 months ago, Citigroup intensified efforts to woo Asia’s biggest companies, he said. The company now holds weekly meetings, attended by corporate and investment bankers as well as managers at other units, to discuss 10 companies that are among the region’s top potential fee generators and with which Citigroup is seeking to deepen ties.

Citigroup in January said it had entered into a global treasury management agreement with China Petrochemical Corp., helping the biggest Asian oil refiner manage more than 1,000 bank accounts in 38 offices worldwide through Citigroup’s global network.

China Revenue

Four months later, Citigroup won a role helping the company known as Sinopec raise $3 billion in its first sale of dollar- denominated bonds in 15 years, the biggest such offering ever by a Chinese company.

Corporate and investment banking revenue stemming from China, the world’s second-largest economy, is up about 30 percent this year from the same period in 2011, Faruqui said.

Citigroup ranks third in advising on so-called G3 debt sales in the Asia-Pacific region excluding Japan this year, after taking the top position in 2011, Bloomberg data show. It is fifth in arranging sales of shares and convertible bonds, up from ninth last year. In mergers advisory, the bank is No. 5 in the region, unchanged from 2011, the data show.

“We have made good progress, I am not saying we are done,” Faruqui said. “We can and are withstanding this volatile period.”

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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