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Citigroup is making a push to expand its offering to small and midsized businesses around the world, hoping to double its commercial banking revenues even as competition for the same borrowers intensifies.
In the past two months, the US bank has poached a top banker from Barclays to head efforts to work with more UK companies with annual revenues between $10mn and $3bn, and launched its first dedicated unit for smaller companies in Japan.
It has also bought a stake in Numerated, a US fintech that uses artificial intelligence to analyse and collect data for business loans. Citi is working with Numerated to use its machine learning models to better manage its own loan data.
Citi generated just over $3bn in revenue from commercial banking clients last year — a small portion of its total revenue of nearly $80bn — but said it believed it could double the business over time.
Japan is the sixth country in which it has launched dedicated commercial lending units over the past two years, following Canada, Switzerland, Germany, France and Ireland.
In all, Citi has named a half dozen new regional leaders in its commercial bank since it announced its wider restructuring effort nearly a year ago. Many of them are in Asia, where Citi sees servicing companies that have been below its radar in the past as crucial to expanding its business.
It also sees the push into commercial lending as proof that the simplified bank can be better at cross-selling following a reorganisation that cut thousands of jobs.
“We are able to provide to our midsized corporate clients the same payments services that we provide very large companies around the world,” said Tasnim Ghiawadwala, who leads Citi’s commercial bank division. “That’s incremental revenue for a bit of investment but not a huge amount of investment.”
The bank does not disclose the unit’s financial performance but said as recently as 2021 that its return on equity exceeded 30 per cent. That would make it one of the most profitable divisions in a bank that reported a company-wide return on equity of just over 7 per cent in the second quarter.
“Citi has a tremendous corporate franchise and a lot of the technical expertise to serve the commercial segment largely in place,” said Chris McDonnell, a commercial banking analyst at industry research group Coalition Greenwich. “It’s a competitive strength that they can capitalise on.”
Going after smaller corporate borrowers is a departure for Citi. Except for a brief push to be everything to everyone in the early 2000s, it has long prided itself on serving only the biggest companies. Bank of America, JPMorgan Chase and Wells Fargo all have much bigger small-business lending groups.
But its pursuit of smaller clients comes as regional banks, squeezed by higher interest rates and losses in commercial property, have been hamstrung in how much they can lend. Business lending, like other aspects of banking, has also become more driven by technology than by personal relationships, playing to the strengths of large, well-resourced banks.
“Executives increasingly want to interact with their banks through their phones rather than having to put on suits and meet in a boardroom,” said McDonnell. “The definition of what is high touch has changed.”
Citi is not alone in seeing an opportunity to expand its share of the market. BofA has also made expanding its commercial lending a priority, and Wells Fargo has been building out its investment bank to capture more fees from its existing small and midsized clients.
One Citi client’s story also illustrates that cross-selling to corporate borrowers can still prove harder in practice than it appears on paper. Deel.com, a start-up that provides virtual human resources and payroll services, said working with Citi had been critical to its international growth.
“We have accounts with them in 60 countries over the world and can bill our clients in their currency and then distribute money into different currencies,” said Dan Westgarth, Deel’s chief operating officer. “The collection of understanding of our needs and the ability to execute on those needs at Citi was unique.”
When it came to paying its clients’ employees through a debit card, however, Deel went with a rival, which Westgarth said had a better offering. As for who might manage a potential initial public offering for Deel, Citi does not seem to have the inside track on that, either. “We are talking to a lot of banks at the moment,” said Westgarth.