Citi Regroups With ‘Ring-Fencing’ Tactic

Source : TODAY, Weekend, January 19, 2008

You take the troubled parts of the portfolio and move them into a separate area ... hived off from the good parts. — Citi’s country head for Singapore Piyush Gupta

THE sub-prime woes might have battered Citigroup into registering its heaviest loss in the fourth quarter of last year in its 196-year history.

But the world’s biggest bank is confident that it can stem the bleeding from sucking life out of its other markets, including the prized market of Asia, by “ring fencing” the crisis, as Citi’s country head for Singapore Piyush Gupta, puts it.

By doing so, its fast-growing Asian operations will remain intact — ditto for the jobs and bonuses — for its employees across the region, including Singapore, Mr Gupta assured at a hastily-assembled press briefing on Friday.

Said Mr Gupta: “When we run into a troubled situation, the first thing people do is to create a good bank and a bad bank. You take the troubled parts of the portfolio and move them into a separate area, put separate management around it, so that it does not distract you from the running of the rest of the business.”

“Servicing, securitisation and trading (the troubled parts) — we’ve put them together and all under one person. That part has been hived off from the rest of the good parts.”

On top of appointing Mr Vikram Pandit as its new chief executive, Citi has turned to Mr Richard Stuckey — who, in 1998, along with five other Wall Street executives rescued a giant hedge fund back from the brink of collapse — as the man to head its newly carved-out unit.

Mr Stuckey has his work cut out. Last Tuesday, Citi announced a fourthquarter net loss of US$9.83 billion ($14.1 billion) as surging defaults on home loans forced it to write down the value of sub-prime-mortgage investments by US$18 billion. It also said it would be handing the pink slip to 4,200 employees.

Press reports emerged soon after that some Singapore employees had already been laid off.

But Mr Gupta dismissed suggestions that the layoff had anything to do with the bank’s dismal fourth quarter results. It was normal attrition for the bank, which hires some 9,000 employees here.

In fact, Mr Gupta — who was bullish about the bank’s prospects to gain greater market share here — expects the bank to increase its headcount in the coming year.

While declining to be specific on the number of staff who had left the bank recently, Mr Gupta said: “The layoffs in Singapore are as close to zero as you can expect. Frankly, it’s no different from the layoff numbers of the last several years.”

There will be no bonus cuts, he said. “Good performers will continue to receive good bonuses. Staff will be paid salary increments.”

Trotting out impressive figures, including how Citi Asia Pacific had a record year with year-on-year revenues growing 33 per cent, Mr Gupta reiterated that the job cuts would be “concentrated principally in the United States and perhaps Europe”.

Said Mr Gupta: “The impact of any of these cuts on Asia is minimal and the impact on Singapore is even lower than minimal.”

With Asia taking over as the single largest contributor to Citi’s revenue last year, “the directive from HQ is that we should continue expanding in Asia”, he added.

Citi has taken active measures such as securing US$14.5 billion injection from outside investors, including sovereign funds from Singapore and Kuwait, and reducing its quarterly dividend. This gives Citi the financial muscle to grow its business, said Mr Gupta.

The fact that the Government of Singapore Investment Corporation (GIC) came on board is proof of investors’ confidence in the bank, said Mr Gupta, adding that the GIC “are no naïve investors”.

While he conceded staff morale has been affected, Mr Gupta said it was the same across the industry.