- Citigroup repeatedly stressed the power of its global network during its first investor day presentation since 2008. The bank has cut the client list in its Institutional Clients Group from 32,000 in 2012 to 14,000 in 2016, as it focuses on its most profitable clients.
Citigroup on Tuesday held its first investor day since the 2008, signaling that its long road to recovery since the financial crisis is largely over and that the bank has hit its stride.
“We have improved the quality and consistency of our earnings and are reaching our stated goal of being an indisputably strong and stable institution,” Citi CEO Michael Corbat said during his opening remarks. “As I’ve said, our restructuring is over.”
Investors liked what they heard, as Citi stock closed the day up nearly 3%.
They also heard one word over and over again throughout the day, and it helps explain how Citi orchestrated its comeback: “network.”
The word, which refers to the company’s presence in 98 markets around the word, was mentioned 23 times alone in the presentation for the bank’s Institutional Clients Group (ICG), which is its most profitable business, accounting for 70% of Citi’s $15 billion in profits and nearly half its revenue the past 12 months.
The oft-repeated word highlights what Citi considers one of its largest advantages over its peers: The streamlined company has become the day-to-day banker for the world’s largest corporations across the globe, handling an array of recurring money and payment needs.
“Our global network is what’s driving our momentum,” Jamie Forese, the CEO of Institutional Client Group, said during the presentation. “[The network] cannot be easily replicated by any of our peers in today’s market.”
In practice, this means that for many of the largest companies on earth – 84% of ICG revenues come from large multinationals – Citi is a one-stop shop nearly across the globe for daily financial services like sending and receiving money, trading financial products, using commercial credit cards, corporate lending, and exchanging currency. The bank has trading floors in 77 markets.
The businesses tied to its network are especially valuable to Citi given its utility day-in and day-out.
Investment banking is a valuable business – it drove $4.9 billion in revenue for Citi the past 12 months – but Citi’s large corporate clients aren’t acquiring companies or issuing debt every single day, so the revenue opportunities are more periodic. Whereas these companies do need to send and receive payments consistently, and many of Citi’s financial services clients need to be trading every day.
“Many of competitors are capable only of competing for that episodic revenue,” Forese said. “We can compete for episodic as well as the more valuable recurring opportunities.”
Here’s a breakdown of every line of business in Citi’s Institutional Clients Group, which illustrates that the services most tied to its global network account for the most revenue and have grown the quickest in recent years.
A key factor driving the success of the network and the Institutional Client Group overall mirrors Citi’s company-wide focus post-crisis: trimming the fat and eliminating extraneous businesses that are more trouble than they’re worth.
For ICG, this involved culling its client base from 32,000 to 14,000 from 2012 to 2016, zeroing in on customers with deep relationships that drive revenue, including a heavy focus on emerging markets.
“The decision to cull the client base was a function of eliminating clients where we didn’t think the network could provide anything distinctive,” Forese said. “Our top 1,000 clients generate about two-thirds of our revenue.”
Forese said Tuesday he anticipates the ICG client base will shrink further yet.
Here’s a slide showing the focus and evolution of Forese’s group: