Citigroup is reportedly putting its services business at the forefront of its upgrade project, highlighting how the global movement of money can enhance profitability.
The services business, one of the bank’s five newly formed divisions, will be the focus of an investor day at Citigroup’s Manhattan headquarters on Tuesday (June 18), Bloomberg reported Monday (June 17).
During the event, Citigroup CEO Jane Fraser and Chief Financial Officer Mark Mason will present the restructuring plans, drawing attention to a segment that accounted for nearly half of the bank’s profits in the last quarter, according to the report.
Despite being a less glamorous aspect of the bank’s operations, the services business has become a reliable source of profit, the report said. It plays a crucial role in managing and moving cash globally for large international clients; handling payments for goods, services and salaries; processing capital flows and investments; and providing cash at key points in supply chains.
Notable corporate clients of this division include Amazon and Uber, while the U.S. government also relies on Citigroup for payroll services both domestically and internationally, per the report.
While Citigroup’s trading operations and credit card business often attract more attention, the services business has proven to be a consistent source of profit, according to the report. This is particularly significant for a bank that has faced challenges in keeping up with its competitors and is under regulatory pressure to invest in system overhauls.
The division has benefited from higher interest rates, which have increased the volume of money being moved, leading to a 17% rise in the bank’s stock price this year. Fraser has referred to the services business as the firm’s “crown jewel,” per the report.
Citigroup’s extensive network, closely integrated with its foreign-exchange teams, has been built over several decades to establish a global banking franchise, the report said. The complexity of this network makes it difficult to replicate, and it provides the bank with a competitive advantage.
However, the global reach also comes with risks, as demonstrated by the bank’s need to set aside $1.3 billion in reserves to cover cross-border and cross-currency exposures in Argentina and risks related to Russia, according to the report. Citigroup is also in the process of reducing its retail banking presence in 14 countries.
Under Fraser’s leadership, Citigroup initially underperformed compared to other major U.S. lenders, the report said. However, the bank’s stock has performed better since Fraser announced more aggressive measures to boost returns.
The upcoming investor day aims to maintain this positive momentum by demonstrating that there is still room for the stock to grow, per the report.
