Retail arm withdrawal plans hit road blocks for Citigroup

Citigroup may not be able to exit consumer banking in the 13 markets on schedule

The South Korean subsidiary of Citibank failed to find a suitable acquirer to take over its retail banking arm, which has triggered a heated dispute over employment security.

According to Korea Times, Citibank Korea’s management last week confirmed that their efforts to sell the consumer banking operation had failed, leaving the US headquarters with little choice except to close the unit without selling it.

One of the more tricky issues has been the gigantic cost burden to guarantee the job security of employees, which is a big barrier for interested buyers.

Signs of a possible dispute among its employees are already appearing following Citibank Korea’s announcement. As was widely expected, the company’s union opposes the lender’s decision, calling the move “careless and irresponsible.”

“Citibank Korea decided to carelessly shut down its consumer banking after just pretending to protect consumers and guarantee job security,” the union said last week, asking the authorities to block the lender’s decision that would result in the layoff of some 2,500 employees.

The Financial Services Commission is reviewing whether Citibank Korea’s decision is in line with local banking acts.

There are no other options for the lender, it said, as it has failed to find a potential buyer to acquire the unit with a guarantee of employment security.

Citibank Korea’s average annual employee salary reached approximately $95,600 as of the end of 2020 – much higher than that of the nation’s top four commercial lenders of Shinhan, Woori, Hana, and KB.

Korea Investors Service (KIS) believed that Citibank’s plan to phase out its consumer banking operation will have a negative impact on its credit rating, considering that its foothold in South Korea will weaken.

“It is difficult to say that the bank’s corporate banking network is independent from its consumer banking unit, so the bank losing its retail customers may reduce the number of its corporate clients to some degree,” KIS noted in a report.

DBS, Standard Chartered, Cathay Financial Holding, and Fubon Financial Holding, are currently bidding for Citigroup’s Taiwan consumer assets, which are valued at roughly $2 billion, according to Bloomberg.

Meanwhile in Thailand, Bangkok Bank Pcl plans to make an offer for Citigroup’s Thai assets, which might be worth more than $2 billion.

Bank of Ayudhya Pcl (Krungsri), a subsidiary of Japan’s Mitsubishi UFJ Financial Group, is also considering a bid. Krungsri, in particular, has just purchased SHB Finance, one of Vietnam’s top five consumer finance firms, which is owned by local lender SHB.

Meanwhile, DBS intends to compete for Citigroup’s consumer arm in Indonesia, whereas UOB CEO Wee Ee Cheong stated in May that the bank was considering making an offer. Malayan Banking Bhd. is also considering an offer for the Citigroup unit, which could be worth up to $1 billion if sold.

In August, NAB – one of the four largest lenders in Australia – confirmed a deal to acquire Citibank’s consumer banking arm in Australia. The move is expected to create the second-largest credit card provider in that country.

NAB entered Vietnam in 2014 before exiting again in 2019 after the State Bank of Vietnam issued a decision to revoke the license of its representative office.

Citibank Vietnam has emphasised that its global movements would not in any way dilute the bank’s long-term commitment to Vietnam or the Asia-Pacific region.

The bank would refocus and further invest its resources to focus on the institutional banking sector in Vietnam, and the country is continuing to be a strategic market for the US financial behemoth, a bank representative told VIR.