Citigroup Inc (C) Management Grilled Over EM Exposure

Citigroup Inc (C) Management Grilled Over EM Exposure

During a recent conference call covering second quarter earnings, Citigroup Inc. (NYSE:C) CEO Mike Corbat was repeatedly questioned about the company’s exposure to emerging markets and how he plans to deal with challenges in Asia and Latin America.

Citigroup Inc (C) Management Grilled Over EM Exposure

Citigroup’s CFO walked listeners Through the Q2 earnings  report

Citigroup Inc. (NYSE:C) CFO John Gerspach walked listeners through the company’s Q2 earnings report, and was painted a positive picture of emerging market activities including 8 percent year-on-year earnings growth in Latin America compared to 4 percent growth in costs and 2 percent growth in revenues in Asia compared to a 2 percent reduction in expenses.

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Emerging markets account for 43 percent of earnings and nearly half of pre-tax earnings at Citigroup Inc. (NYSE:C). IT also accounts for two-thirds of revenue growth over the last two years, giving investors plenty of reason to worry about the impact that slower growth and volatility could have on Citigroup’s profitability.

When asked why emerging market volatility hadn’t had a larger impact on the company, and on forex operations in particular, Gerspach said, “I think we managed our emerging markets business quite well in the quarter.” He went on to point out that “Our local markets FX business … generated revenue growth 25 percent year-over-year and 7 percent sequentially.”

But other callers brought the conversation back to topic of emerging markets. When asked if Citigroup Inc. (NYSE:C) was reconsidering its emerging market strategy in light of the slowdown in Brazil and China, Corbat chimed in saying, “The simple answer to that is no…I don’t think those things have caused us to rethink where we are.”

How Would Citigroup maintain profits in EMs

When asked directly how Citigroup Inc. (NYSE:C) would be able to maintain growing profits in Asia and Latin America, Gerspach said, “We feel that the consumer businesses in both Latin America and Asia should produce positive operating leverage in the second half of the year as we are able to grow revenues faster than growing expenses. On the institutional side it’s somewhat dependent on overall market conditions.”

Gerspach did acknowledge that the company is facing significant regulatory challenges in South Korea, which is putting a drag on the rest of its Asian operations. “If you look at Asia, excluding Korea and Japan, year on year we’re getting 10 percent loan growth,” said Gerspach. “Korea is an anchor, but it’s not the only thing that’s propelling our business.”

He also said that the company could be faces in Mexico because of problems in the home-building industry. Gerspach said that some the country’s largest home builders “got a little overextended in putting supply where people don’t necessarily want to live anymore” and that they are nearly 100 percent collateralized.


Despite these concerns over Citigroup Inc. (NYSE:C)’s exposure to emerging markets, the Q2 earnings report released today showed a 41percent increase in earnings, impressing investors and giving Wall Street a boost.

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