Daily News Egypt sat down with the CEO of Citibank in Europe, Middle East and Africa (EMEA) Jim Cowles as the bank celebrated its 4th decade in the Egyptian market. During our sit down, the future of the bank in Egypt was discusses. The meeting also tackles the bank’s plans to evolve its business model after selling its consumer business and its willingness to invest in the future.
You have been in the market for four decades. How has Citi’s model evolved in those years?
Looking at the banking sector in general, one of the things that is interesting is that, with the banking crisis that has hit on a global basis, one of the things we have seen is that there’s obviously a lot more regulation over the last seven or eight years. I actually think a lot of that regulation is very good. I think when you take a look at Basel III it has got some very good components. I think a lot of the banking regulation is also very positive and what it does is that it looks at banks and says “you have got to be more disciplined in terms of what you do”. If you look at Citi, prior to the banking crisis, we had increased our balance sheet from about $2tn to $3tn. At the same time, our return on assets went down. When the banking crisis hit, we had to make some tough decisions in terms of looking at our business and in terms of the new regulations that were coming in such as Basel III. We said that we have got to realign our strategy and focus on those businesses where we had a competitive advantage and where we offer something unique to our clients.
The US banks got into this earlier because the crisis hit the US banks earlier than it hit other banks around the world. The US banks had to face this situation earlier than other banks around the world. In about 2007, we set up what we call Citi Holdings and we put $800bn of assets in it. A number of those assets and businesses were very good but we looked at them and said they don’t fit our strategy going forward. If you look at Smith Barney, it is a great business, but we said that doesn’t fit our strategy. Over the last seven years, we have brought down, sold off, run down and restructured the businesses of Citi Holdings from over $800bn to $80bn, we brought it down by about 90%. At the same time, what we said is that in Citi Corp we are going to have the businesses that made strategic sense for us. We have our retail and consumer business and we have got the institutional business.
In the consumer business, we looked at it and examined what countries we operate in and what do going forward. So by the end of this year, our consumer business, we will have brought our presence down to about 24 countries such as Russia, UAE, Poland, Bahrain and the UK. Those are the countries where we have big enough scale and scope to make a difference. In other counties, we said that we have very good business in them,but we don’t have the scale and the scope to be able to compete locally. That is why we decided to sell our consumer business in Egypt.
Looking at the institutional business, it is where we have four different client sets; the public sector, the global clients, the local financial institutions and the local companies. That is where being in a 101 countries around the world is a competitive advantage. Going forward, looking at Egypt, we decided to sell the consumer business and [focused on] what we offer our clients that is truly different. That is where we looked at in institutional service and said that we can offer products and services and access around the world that no other bank can offer.
What products and services would you offer institutions here?
It is across a number of different areas such as investment banking, corporate banking, transaction services business, markets and treasury businesses like sales and trading, local market access in terms of credit market and hedging.
Would you be willing to invest in Egypt in the next five years?
I think that as we take a look at our position in Egypt, we think that our commitments will definitely grow as we go forward. We think our clients will grow in Egypt. As our clients grow, our balance sheet, our exposure and our business will grow in the country as well. Yes, I would say that as we take a look at our position in this country over the next several years, we are going to definitely see our commitments to the country increase.
Do you have a percentage of client growth in mind?
We don’t. Right now, we have had a very good experience over the past couple of years and when I take a look at the economy, we think that the GDP is going to grow in the country by about 4.5% over the next couple of years. In our experience in emerging markets, when GDP grows by a certain rate, we typically see the financial services grow by about 150% or 200% of the GDP growth rate. I would estimate that the financial services will grow by about 6% to 9% each year over the foreseeable future. So in our business here, we should at least see that same sort of growth going forward because we should grow at least at the same rate that the market grows.
You have announced that you will exit 11 markets when it comes to consumer business. How many have you exited so far?
We have agreements to sell all of those businesses so it is just a matter of [time]. Well, the closing dates on some of them will be in 2015 and some will happen in 2016. It all depends on the regulatory process.
We have seen depreciation in the value of the Egyptian pound against the dollar. How do you see this affecting the investment appetite?
I think that the country has made a lot of progress over the last year or so. I think that the country made progress in terms of brining stability and putting in place certain reforms. I think those reforms have happened faster than what people anticipated. The public reception of those reforms has been very smooth.
When you take a look at the other things the country has done such as the EEDC conference, which brought about $31bn of foreign direct investment commitments, I think this is significant. When you look at the progress in terms of energy, again this is significant when looking at the country. When we take a look at Egypt and its macroeconomic situation, we feel very confident going forward with the country going in the right direction. We were fortunate enough to be one of the main underwriters of its bond offering earlier this year and again the foreign investor reception has been very positive.
With any country, whether it is a developed market or an emerging market, it goes through various trials and fluctuations. That is part of the process. I think that the important thing is to look at the country in terms of the progress it is making. When we talk to our global clients who are here, every one of them is committed to the country.
You talked about taking part in the bond offering. Would you be interested in taking part in any future dollar bond offering?
Yes, we would be. I like to think that we have a good relationship with the Ministry of Finance. We go to them quite often in terms of ideas and how we can be of assistance. We hope that we continue to be part of their plans as they access the capital markets. We think we are in a good position to advice different countries on their monetary and fiscal policies.
Are you as a global franchise worried about how the slowdown in emerging markets would negatively affect you?
In this region, Europe, Middle East and Africa, we are in 55 countries. As I tell our regulators, at any point and time in EMEA, we are going to have at least a handful of countries that have got some sort of financial, social, military or economic crisis. That is to be expected, but one of the things Citi has done over the past decades is that we built up the policies and the procedures and the practice, and we have the people who have the experience, of how to deal with those situations. As I tell people, we are not a hedge fund. When there is a problem we are not just going to say that we are going to sell and leave and come back when times are better. The value that we have is in being a responsible bank when times are tough. When you take a look at the 55 countries where we operate in this region, we are profitable in every single one of those countries so I think we have the right strategy.
What are your expectations for the growth in Egypt?
As the country does better, and as our clients do better, we do better. When we take a look at our performance in the country this year, we have been able to have a better performance. I think that it is what we look forward to in the coming years as well. When we take a look at the country and when you take a look at Citi overall, we have got a balance sheet that is $1.9tn. As we sell some of our consumer businesses, we will take that capital and balance sheet and recycle it to the institutional business. In Egypt, we will increase our presence and our balance sheet and commitment to clients.