Trade War Places Citi Trade Finance Business in Box Seat
(Asia - 30 July 2019) Following Citigroup’s Q2 2019 earnings results the Treasury and Trade Solutions (TTS) division has yet again stolen the show.
Revenue growth accelerated by four percent to US$2.4 billion in Q2 2019 with Citi’s TTS division representing cash management and trade financing needs for multinational corporations (MNCs) and governments. The team is widely considered the group’s crown jewel given consistent growth, robust returns and centrality to Citi's global network.
Despite merchandise trade volumes set to feel the brunt of uncertainty stemming from the US-China trade wars, Brexit and other geopolitical events, Citi’s trade financing operations have only seemed to grow stronger in 2019. Citi's trade finance business is uniquely positioned to benefit from President Donald Trump's confrontational trade tactics with China, Mexico, and Europe, showcasing the value of the bank's entrenched presence in nearly 100 markets. Other trade finance teams that lack the same extensive global representation are expected to find it difficult to achieve the same dynamic.
Citi's trade unit benefits in the short run when individual companies on its extensive global chain transfer their operations because of trade volatility. More than 50 MNCs including Amazon, Apple, Dell, and HP are planning to shift operations out of China amid the tariff war according to research from Nikkei Asian Review. The disruption may be helping Citi's trade business now however uncertainty has the potential to dent confidence and negatively impact global demand, taking a toll on the whole industry.
Disrupted trade flows only help a bank's trade finance business if they have an established presence wherever the flows are shifting, according to Eric Li, a research director at Coalition. "When trade corridors shift, not every bank benefits. It can take years to develop a footprint in a given country or region" Mr. Li stated.
"Because of Citi's global footprint, we are financing both the export of soybeans from Brazil and Argentina to the Chinese, and also financing the exports of soybeans from the US to Argentina and Brazil. As our clients adapt and need financing through these new routes, we get to finance the same transaction throughout the entire lifecycle, which has helped our profitability” stated Citi’s Global Head of Trade Finance, John Ahearn. “You're seeing all these trade quarters shifting. Will it lead to a global economic slowdown? We're seeing some early signs, but the next few quarters will be key” he added.
“Growth in deposits, transaction volumes, trade spreads and strong client engagement drove the result" stated Citi CFO Mark Mason.
Subscribe