In an effort to expand business in Asian markets, Citigroup Inc. (C) could invest billions in its consumer banking unit in the region. According to a Bloomberg report, Citi schedules a $3 billion to $4 billion of investment in its consumer business with a sizable part of it in the emerging markets, over the next two to three years.
Asian operations have been a significant contributor of Citi’s consumer banking income in the prior year and remain an attractive market with growth in the middle income and wealthier class, which resulted in perked up consumption. Hence, newer branches, revamping of existing ones and strengthening of service offerings are parts of Citi’s strategy.
In the backlash of the recession and a tepid recovery in the U.S., the fast-growing markets of the Asian region have become the new dots on the corporate map. The emerging economies in the Asian region are investing significantly in infrastructure to accelerate growth.
Fast growth in economies coupled with rising inflow of funds is making these markets attractive. Other biggies that have joined the Asian bandwagon include HSBC Holdings Plc (HBC) and Standard Chartered Plc.
Citi’s restructuring initiatives are encouraging; however, the revenue headwind remains a concern. Additionally, the CARD Act and the financial reform law continue to challenge revenue. We believe that solid earnings at Citigroup would remain elusive until its revenue experiences a decent growth.
Nevertheless, the company’s core business, Citicorp, remains attractive and its global footprint is impressive. The focus on expanding into the fast-growing economies also augurs well.
Citi is currently retains a Zacks #3 Rank, implying a short-term ‘Hold’ recommendation. Considering the stock fundamentals we have a long-term “Neutral” recommendation on the stock.
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