Tell us a little bit about Citi's global transaction services business.
Galant: Global Transaction Services has been providing critically fundamental services to clients over the last five years. Going forward, I think we will continue this track record and be a core asset to Citi, because we are a business that relies less on markets and episodic events, and more on becoming an integrated provider of solutions to clients who want to grow their business regardless of fluctuating market conditions.
The business is doing extraordinarily well. We've had 17 consecutive quarters of strong growth. Seventeen quarters of impacting markets that a few years ago we had absolutely no connectivity to. We're redefining transaction services in a way that is extremely beneficial and creative to clients. We focus great effort on concentrating on 3,000 of the world's largest corporate, financial institution and public sector clients. By listening to them and understanding their needs, we've become a seamless extension of their strategy.
Citi brings scale and a network of over 100 countries to our clients and the huge benefits of having intelligently invested in the right technology. As a result, our clients benefit from a single, consistent, global platform, and that gives us a tremendous advantage over our competitors.
Can you give us a perspective of how your business has developed?
Galant: In 2003, the GTS business, globally, had less than 2% market share overall. It was a big, well-regarded successful business and it was making somewhere in the order of a little less than half a billion dollars after tax net income. A big business, an important business.
But let's look at how well the same business has performed since 2003. Despite low interest rates, despite choppy markets, and unfavorable conditions, we have thrived. In my opinion, this is due to our overall focus on the client - whether it is innovation, paying attention to their needs or investments in technology, we have been able to go from a market share that was less than 2% to clearly 4% plus in 2007. Sounds tiny but in a wallet of $200 billion, it's significant. And we've been able to create a pipeline of new business in excess of $2 billion.
How is Asia important to your business?
Galant: Asia has been a barometer for us - the standard of how we'd like our clients to think about us. Our Asia franchise, which Anthony Nappi has been running for years, creates strategies and best practices that many of the regions and clients follow. The momentum our GTS Asia franchise creates here is infectious. So infectious that it draws me here at the beginning of the year and I take this energy back to New York and translate it to the rest of the world.
Why is the growth here?
Nappi: What you're seeing in Asia, especially over the last three years, has been a renaissance of banking requirements and needs. As customers go from small to large, their needs increase. If you look at M&A activity, it used to originate in North America and Europe and make its way into Asia. Now it's the other way around and we've seen our clients' banking needs and level of sophistication grow exponentially.
We have a unique competitive advantage in that we bank both ends of the supply chain. We bank the 3,000 big clients globally but we also bank their suppliers in Asia, Eastern Europe and Latin America. We have the ability to connect the global buyers' business on an end-to-end basis. We've been able to leverage a lot of the capabilities that have originated in North America or Europe and built upon them to meet our clients' needs.
We're also seeing that markets have continued to liberalise. For example, whereas you couldn't do a liquidity structure in China two years ago, you're allowed now to do physical pooling in China. As these structures change, clients' needs change and their becoming very big clients.
Who would have thought that Lenovo, for example, would have purchased IBM's PC business? Who would have thought that Tata would now be looking to purchase Jaguar and Rover from Ford Motor Company? It's a very different environment and the market caps of some of these companies are bigger than some of the companies in the US and Europe. Given this environment, we've been at the forefront of trying to innovate and provide clients with services.
Clients usually have three things from a corporate treasurers' point of view that they look for. They look, from a control point of view, to understand their business, to control different aspects of their business around the world. They also look for transparency into those activities and they want to optimise the liquidity that we're flush with in Asia.
Citi GTS has been trying to push the innovation on the mobile front. How does that work?
Galant: Mobile phones are every bit as powerful as laptop computers for receiving and sending information. Because mobile phones have the ability to authenticate as well as to access, in almost real time, data, reporting and instructions, they are excellent devices for the banking world. Additionally, this channel is a natural fit for banking because telecom companies are also trying new ways to increase their growth in saturated markets in sustainable ways. They are thinking about the best way to use their constantly increasing bandwidth and capacity. The chip sets telecom companies are using today have 10 times more capacity than the chip sets used three or fours years ago, but they don't have enough content going through them.
By having telecom companies connect to our transaction banking services, our capability for payments for example, one of the things we can do together is send domestic payments through these phones. Customers can pay all their bills, and they can also pay person-to-person. Where it gets really interesting is when they start using the device to pay person-to-person on a cross-border basis. That's where I think Citi has capabilities that other banks do not have. For instance, if you wanted to make a payment to a person in Guatemala, we could do that for you, and we could deliver the payment by cash, check or wire, in the local destination's currency, and quite cost-effectively. We can do that because we already maintain that network.
Tell me about compliance.
Nappi: Compliance is something we focus on and take very seriously. In this day and age, banks are required by law to know their customers, to know if they are allowed to make these and other types of transactions. It's called KYC - "Know Your Customer".
Galant: There's also something called "OFAC Screening" (US Department of Treasury's Office of Foreign Assets Control) to make sure the customer is not on a list of people or companies suspected of doing bad things. Then there are anti-money laundering issues.
So you take the entire requirement of compliance, and you take the network that the phone companies keep, the network that the bank maintains, and you try to build something that you can scale. It can be very, very powerful. But there's a substantial amount of work that needs to be done to replicate through the phone the act of reaching into your pocket and getting the money and giving it to a person you see on the street.
Nappi: We have a number of pilots running in the region where we're leveraging this technology. We're focusing on local remittances and working on pilots in the Philippines and Malaysia. The issue that Paul is articulating is a little bit reminiscent of the issues that arose when we introduced electronic banking and changing people's behavior. I personally think that mobile technology will be the next big wave. It's going to take a few years to embed itself, and prove the value proposition to the customer, but I think this is going to work.
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