A group of urgent visitors descended upon the offices of the Financial Supervisory Commission (FSC) on the afternoon of April 14th.

Paulus Mok, Chairman of Citibank Taiwan, came with news that chilled FSC Chairman Thomas Huang to the bone. Citibank was withdrawing from Taiwan’s consumer banking market.

“We’ve told headquarters that Citibank Taiwan is making money,” says Mok. He does not deny that Citibank has made promises to this country. But Jane Fraser, the new CEO of Citigroup, has made her position clear. Mok can only stress this move does not signal pessimism about Taiwan’s economy or future. Citibank’s corporate banking branch will continue to operate in Taiwan.

The next evening, Taipei time, Fraser made her official announcement. Citibank was selling off its retail business in 13 countries: Taiwan, India, China, Australia, Indonesia, South Korea, Malaysia, the Philippines, Thailand, Vietnam, Bahrain, Poland, and Russia. This included businesses in asset management, consumer banking, and credit card services. Instead, Citibank would set up wealth centers and provide services in Hong Kong, Singapore, London, and the United Arab Emirates. 

The very next day, Citibank announced it would request to establish an investment bank in China sometime during the next 18 months. 

“This feels like the boldest strategic step since Sandy Weill (former Citibank CEO and inventor of the financial supermarket) was CEO,” says Mike Mayo, a Wall Street stock analyst famous for his withering critique of Citibank. He has long advocated that Citibank slim down its consumer banking arm. Fraser is the first female CEO in the history of not only Citibank, but of all the big names on Wall Street.

More than 100 years ago, Citibank first set up shop in China to handle the Boxer Indemnity. It has always been more than a bank--it is an extension of American power. And yet, despite the tensions between China and the United States, and in light of Chinese crackdowns on the pro-democracy protests in Hong Kong, Citibank has opted to exit Taiwan, enter Hong Kong, and open an investment bank in China. It goes to show that, for bankers, profit trumps all.

33 years of consumer banking in Taiwan, on the backs of the rising middle class

In 1988, Citibank acquired Taiwan First Investment and Trust Co., and began providing its first VISA card and car loans in Taiwan. It was the beginning of 33 years of consumer banking in Taiwan. Citibank witnessed the golden age of Taiwan’s rising middle class. 

(Source: CommonWealth Magazine)

Citibank has a rule for evaluating new ventures. When GNI per capita surpasses $10,000 dollars, it gives rise to the middle class, with all their sundry needs for mortgages, car loans, and credit cards. In other words, this is the time when the market is ripe for the picking. In 1992, Taiwan’s GNI per capita crossed the threshold. It was the start of three glorious decades for Citibank.

“There was a time when Taiwan meant something to Citibank headquarters,” recalls UBS CEO Dennis Chen, who also once worked for Citibank. Citibank went from only having one Taipei office to setting up shop in Kaohsiung and Taichung, and acquiring OCBC Taiwan.

A great deal of know-how in the consumer banking business, and even some management methods, came to Taiwan through Citibank.

(Source: CommonWealth Magazine)

After Taiwan became more diplomatically isolated, many young financial supervisory officials were invited by Citibank to attend courses in New York and learn about the global finance industry. 

In the business, “Citibank used to be a status symbol,” says PayEasy founder and former Citibank Management Associate Bill Lin. In fact, Citibank once aired an ad that would now be considered politically incorrect: an Asian man walks into a white restaurant and is greeted with suspicion; that is, until he whips out a Citibank credit card, much to the relief of all present (himself included).

Due to its first-mover advantage and unique market position, Citibank had its pick of Taiwan’s best customers. This was why Citibank “made bank”, so to speak, for so long in this country. 

So why is it now leaving Taiwan?

Downsizing reveals dearth of profit in newly minted markets

Fraser left McKinsey & Company and joined Citigroup in 2004. After the financial crisis, she consecutively headed Citi Private Bank, CitiMortgage, and Consumer and Commercial Banking. In 2019, she was appointed Head of Global Consumer Banking. Last September, she became CEO of the entire company. She is the first female CEO of a major American bank in history. 

(Source: Getty Images)

“As the global economy stalls, consumer banking holds no more value for banks; in fact, it makes them vulnerable,” says a former finance company CEO familiar with Citibank’s inner workings. “Emerging markets no longer excite the imagination. These countries have opaque policies and are easily swayed by strategic or geopolitical influences. Uncertainties are too high, so banks lose interest.”

In other words, consumer banking, more than corporate banking, is susceptible to flares of nationalistic fervor, so it is a public relations risk. 

In the nineties, Citibank was swept up by a wave of globalism. It sought to cash in on the rising middle class of every emerging market. At its height, Citibank had offices and offered consumer banking services in 50 countries.

A look at the financial report shows Citibank’s profit margin was only 2.9% for consumer banking in 2020, but as high as 27% for corporate banking.

There are too many intangible strings attached to emerging markets. This was seen as too much of a political risk, and too much uncertainty for Citibank.

To use China as an example, the controversy with the Better Cotton Initiative in Xinjiang has made many Western brands wary of dealing directly with consumers. Even companies that the West thought were safe from political manipulations, such as Alibaba and Tencent, have proven themselves to be more at risk than was imagined.

“All the stocks in these emerging markets are not worth what American stocks are worth,” says the industry expert. The damage inflicted by COVID-19 on emerging markets is also worse than what developed countries have experienced. Unfortunately, the worst is yet to come. Political and economic problems created by the pandemic are brewing, and some fear it’s all coming to a head.

Growth is limited in mature markets

The political situation may be unstable in emerging markets, but even in mature and low-risk Asian and European markets, things are far from peachy. Banks there face the dual challenges of rising competition and limited growth.

One finance company CEO, who was also once a Citibank Management Associate, points out that consumer banking know-how is easy to emulate. As talent flows from Citibank to local competitors, the gap between foreign and domestic banks has closed considerably in the last decade. Citibank credit cards used to be the second most popular; now, it comes in at number 6.

In the wealth management market, Dennis Chen observes that local competitors have really stepped up their game. “The banking industry is beset by slim profits, limited capital, and rising compliance costs.” He feels that regrouping and narrowing the scope of operations will become the new normal for all international banks.

It stands to reason, then, that if even the profitable Citibank has folded, what does the future hold for the consumer banking branches of unprofitable foreign banks, such as HSBC and Standard Chartered? 

For Taiwan, Citibank’s decision to abandon emerging markets and focus on corporate banking and American consumers can be seen as a cautionary tale, especially as it pertains to Taiwan’s “westbound” and “southbound” strategies. The capital, compliance, and technological costs of the global banking business are nothing to sneeze at. That is wisdom you can take to the bank.

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Translated by Jack Chou
Edited by TC Lin
Uploaded by Penny Chiang