In an effort to expand its business in the Asian markets, particularly in the Southeast Asian regions, Citigroup Inc. (C) has started its brokerage operations in Malaysia. The company had already begun operations in Indonesia last month and intends to spread out into the Vietnamese market. The expansions are part of Citi’s strategy of recovery following the financial crisis and the government bailout.
The State of Citi
In the first half of 2010, Citi had already opened 27 new branches in the greater Asia-Pacific region, leading to 710 branches in total. The company also intends to open another 70 branches in this region within a year.
In the backlash of the recession and tepid recovery in the U.S., the fast-growing markets of the Asia-Pacific region have become the new dots on the corporate map. The emerging economies in the Asian region are investing significantly on infrastructure to accelerate growth. Fast growth in economies coupled with rising inflow of funds are making these markets attractive.
Citi is increasing its market share in its footprint in the Asia-Pacific region which contributed around 35% of the company’s global net income in the first half of the year. This makes this region the biggest contributor outside North America.
Late in August, a Bloomberg interview of a Citi executive revealed one of its biggest expansion initiatives in the post-recession scenario. Citi is planning to triple its workforce in China over the next three years. Other biggies that have jumped onto the Asian bandwagon include JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and UBS AG (UBS).
Our Take
Citi is on its path to recovery. The company reported a second quarter 2010 earnings of 9 cents per share, ahead of the Zacks Consensus Estimate of 5 cents. Results reflected an improvement in the credit quality and lower loan loss provisions. Its core business, Citicorp, remains attractive, while international business also has a good growth momentum. An economic rebound would help it to witness a further improvement in credit quality. Expansion plans in the fast-growing Asian markets are encouraging.
Though the company’s restructuring initiatives are encouraging, we believe that the financial reform Act coupled with the shrinking of its Citi Holding business through assets sale would pose revenue challenges in the days ahead.
Citi is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock is also rated Neutral in the long term.
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