A chat with Citi's vice chairman

Global Finance, May 1998 by Kahn, Sharon

Gobal Finance's deputy editor-inchief Sharon Kahn sat down with H. Onno Ruding, Citicorp's vice chairman, in early April to discuss Citibank's unique global franchise, the bank's global role, and his vision for the bank's future. Before Ruding, 60, joined Citi in 1990, he had been finance minister of the Netherlands, an executive director of the International Monetary Fund (IMF), and chairman of AMRO International.

Q: Dr Ruding, how will the announced merger between Citicorp and Travelers Group change the face of global banking? How does the pairing change Citibank's strategy?

A: The merger creates the preeminent global financial services firm. We think Citigroup will be the leader in serving the financial needs of customers worldwide.

This combination will create great synergy, as there is very little overlap in our current capabilities and product offerings. For corporate and investor customers, Citicorp's global banking, corporate finance, and cash and custody strengths dovetail with Travelers Group's investment banking and corporate finance skills.

Q: Analysts have described Citibank as unique-the only truly global commercial bank at the present time.

A: Don't forget we're also the only bank aspiring to be a global retail bank. It's normal for Procter & Gamble and McDonald's to establish a global name brand, but banking is not used to that.

Why are we uniquely global? It's history. Citibank started the globalization process in 1902. Our people are 100% committed to the globality of banking. It doesn't matter that we're headquartered in America, our mentality is that of a global bank. The intent is to expand smartly-both through quantity and quality. We use local staff that often may go back two and three generations.

Our commercial banking expansion is almost complete. Next month we open a branch in Ukraine. Once that's complete, there's no country of importance where we're not on the ground-except for countries like Iran, where we're prohibited by American law.

Q: Prior to the proposed Salomon linkup, why had Citibank refrained from a concerted push into investment banking?

A: We're allowed to underwrite equity in the United States, but we felt equity was a special area of the large investment banks and [would require] years and enormous investment. We thought we could use our capital more efficiently in other directions.

But fixed income is different. Citibank has been quite active on a global scale in commercial paper.

Q: Typically, Citibank sets up its own branches when entering new markets, instead of buying local banks. Why have you chosen this internal growth strategy?

A: We're not as active in buying large banks in the United States as, say, NationsBank. But don't be mistaken. We have made acquisitions in many caseseven in the United States we bought failed savings and loans. Our secondlargest market is Germany, where we've bought more than 300 local bank branches. Last year we bought Confia in Mexico, and we're critically looking at local banks [elsewhere] in Latin America and Asia.

We've also bought outside of banking. Particularly in Latin America, we've bought pension funds. If we had built pension funds in Chile and Argentina organically, it would have taken too long.

Q: The bank went through some tough times in Latin America in the 1980s. How did those experiences change Citibank's global strategy?

A: We were more exposed during the debt crisis of the 1970s and 1980s than other banks. In the much later Mexican crisis of 1994-1995, Citibank came out quite welL because we had learned lessons.

We'll never give up Asia, despite the use of the word "crisis." But I was frankly shocked at the statistics of European and Japanese bank exposure. A year before the Asia crisis erupted last July, they were expanding substantially. American banks in general, and Citibank in particular, on the other hand, were reducing exposure. At five minutes to 12 you don't expand your cross-border exposure and repeat the mistakes of Latin America.

After the Latin American situation, we installed a process we call "Windows on Risk." We bring together Citibank people from all parts of the world and ask what can go wrong. If we agree that country X might be at risk, we reduce our exposure. We don't allow any one country to expand to more than X% of our total portfolio. This approach was totally absent 15-20 years ago.

Also, Citibank decided in 1996 to move two senior specialists from Latin America to Asia. They know how to handle problems of inflation, of panic, and the like. It has helped tremendously.

Q: Citibank representatives played major roles in negotiating credit relief for Asian corporations and sovereign borrowers last winter. How did this leadership role come about?

A: In Korea and Indonesia in particular, we warned local banks and government people long beforehand that their debt levels were not sustainable. We had played the lead role on behalf of foreign banks in Latin America, where Citibank was the largest creditor 15 years ago. [Citicorp vice chairman] William Rhodes did most of the negotiations there, and it made sense to knock on Citibank's door because Rhodes is still here.