Citigroup 2012 China Profit ‘Sound’ After Adding Products, Staff

Citigroup Inc., the third-biggest U.S. bank, said it achieved “sound profit” in China last year as its local unit added products and hired more people in the world’s second-largest economy.

“There is a high chance that we beat our foreign peer group in profit growth for 2012,” Andrew Au, Citigroup’s chief executive officer for China, said today in Chunan county, coastal Zhejiang province, without providing specifics. “We have more staff now than a year ago and we will continue to add investment in credit-card business.”

The expansion in China comes even as new CEO Michael Corbat trims 11,000 workers and pulls back from certain markets as he seeks to cut costs and improve earnings. Profits at foreign lenders in China including Citigroup and HSBC Holdings Plc reached a record in 2011 and global banks expect revenue in the country to grow by at least 20 percent annually, according to the latest survey by PricewaterhouseCoopers LLP.

New York-based Citigroup in August became the first Western bank to issue credit cards in China without co-branding from a local financial institution as the government relaxes restrictions. The U.S. bank had co-branded cards with Shanghai Pudong Development Bank Co. since 2003, providing technical and personnel support.

Credit Cards

Credit cards are becoming more popular among China’s 1.3 billion people as rising incomes stoke consumer spending. Banks in China issued 331 million cards as of Dec. 31, up 16 percent from a year earlier, according to the central bank. Meanwhile, credit-card debt overdue for more than six months surged 33 percent last year to 1.14 trillion yuan ($183 billion).

Citigroup’s credit-card business has so far done better than the bank had expected on measurements such as the number of cards issued, according to Simon Chow, head of consumer banking at the China unit. The bank will market its cards in more cities, Chow said.

Also in August, Citigroup started an investment banking joint venture with Orient Securities Co., gaining access to the world’s third-biggest market for share sales.

Tying up with a local firm is a prerequisite for arranging equity offerings in China, where companies raised 286 billion yuan through share sales and 4.2 trillion yuan from debt issuance in 2012, according to data compiled by Bloomberg. Mainland China had the third-highest value of equity sales last year after the U.S. and Hong Kong.

Domestic Dominance

Domestic investment banks manage most stock and bond sales in the country. UBS AG’s China venture had 3.5 percent of the underwriting market for domestic equities last year, the most of any foreign bank, data compiled by Bloomberg show.

“We want to be a leading player in China,” Au said. “The recent slowness in equities markets actually gives us an opportunity to lay the foundation well.”

Corbat is reversing part of the expansion pursued by former chief Vikram Pandit, who pushed deeper into emerging markets and was ousted in October. Corbat plans to reduce consumer operations in markets including Pakistan and Turkey.

Global banks hold less than 2 percent of banking assets in China, the lowest share among major emerging markets, according to the International Monetary Fund, and are struggling to expand their retail businesses.

Record Earnings

Citigroup, which incorporated its China unit locally in 2007, earned a record 1.3 billion yuan in the country in 2011, an increase of 45 percent from a year earlier, thanks to its corporate banking unit, according to the annual report. The consumer banking business continued making a loss.

Citigroup, which opened its first office in China in 1902, has 51 outlets in the country today. The bank plans to have 100 locations in two to three years and almost double its workforce to 12,000, Au said in August. London-based HSBC has the biggest network among foreign lenders in the country, with 144 outlets, according to its website.

Foreign banks’ branch networks are dwarfed by those of local lenders such as Industrial & Commercial Bank of China Ltd., which alone has more than 16,000 outlets. Investing in local Chinese lenders has so far reaped bigger profits for overseas banks than operating their own franchises.

Citigroup in March last year sold its entire stake in Shanghai Pudong Development Bank Co., nine years after the purchase, for an after-tax gain of about $349 million. It still holds 20 percent of China Guangfa Bank Co. HSBC this year sold its stake in Ping An Insurance (Group) Co. for $9.4 billion, reaping a profit of $2.6 billion.

Citigroup’s shares have gained 6.6 percent this year, compared with a 6.3 percent increase in the Standard & Poor’s 500 Index.

— With assistance by Jun Luo

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