Citigroup Asia Pacific restructuring – my quick responses

Right after Citigroup announced its business leaders restructuring and new appointments to lead its Asia Pacific business today, several media called me for my comments. The following are my quick responses as cobbled together from my various comments to the different questions asked.

(The press release from Citi on this announcement can be read on The Asian Banker website http://www.theasianbanker.com/)

1. The reorganisation still retains a matrix reporting structure, except that it is now leaner, with all business lines reporting clearly to single business owners with bottom line responsibilities.

During the time of Chuck Prince, there were multiple reporting structures, some to business owners and others to people playing operational roles, for control purposes. For example, retail banking in Asia used to have three heads one each for cards, retail and consumer finance. Business line heads at the country levels had to report to one of the three plus their respective country heads for retail and others. The cost of including people with little or no bottomline responsibilities weighed heavily on the operations then, with important responsibilities falling through the cracks. Citi was faced with enormous problems with several regulators around the world during this time. I guess that in trying to solve some of these problems, Prince created some along the way. I used to tell friends tinking about joining Citi at that time that career-wise, it was not going to be the best place to be in. I had this impression of people who would be required to work and work, but hand all the credit to someone else, somewhere else all the time.

2. The current restructuring initiatives in Asia are coming from two directions. A few global heavy weights from the head office are being assigned regional roles. I think this is a temporary measure, and demonstrates the CEO’s desire to strengthen the organic businesses of the bank. At the local levels, there have been some promotions with clearer bottomline mandates, obviously in preparation for executives at this level to take over regional roles in due course.

Ajay Banga, who is now being appointed to head Asia Pacific, was until last week the head of Citi’s international consumer group, which included all of credit card and consumer banking outside of North America. He got this job in 2005 after Marjorie Magner, a Sandy Weill protege but with zero international experience, left the bank when she was head of consumer.

I still remember when Marjorie came to Asia for th first time when in a leg cast after a car accident – she was such a sorry sight. There is this cohort of people in Citi’s senior management team who are hard core New Yorkers who have not traveled internationally enough, let alone built an international business, and they leave because they feel inadequate.

I do not see Banga being sent to head just Asia for the moment as a demotion from heading all of international, but as an indication of the importance that Citi is placing on execution at the regional business levels right now.

A few other senior international executives have had their roles tightened so that they can make an impact on very focused and aggressive bottomline goals. For example, Shirish Apte, who was previously CEO for Central and Eastern Europe, Middle East & Africa (CEEMEA), has had his role recently curtailed to becoming CEO of Central & Eastern European only.

Hamid Biglari, who used to be head of corporate strategy reporting directly to Sandy Weill and Bob Rubin has been handed an operational role of COO of Citi Institutional Clients Group (ICG). It’s like a case of “all hands on deck” at the senior management layer and there are few appointments that are not related to a very focused business line.

I do not see Ajay Banga staying in Asia for any longer than 18-24 months. In that time, he has to achieve very aggressive growth goals. The benchmrk for him will be to re-jumpstart the 30 percent year-on-year compounded annual growth that the Asian business used to achieve for Citi. If he is able to, he will earn the stripes to head global. It’s not going to be easy for him at all.

From within the Asian teams, Stephen Bird’s star appears to be on the rise. He was promoted to CEO of Citi’s consumer banking business in Asia Pacific last year. The differences with the current changes, as my colleague Peter Hoflich pointed out to me, are that Japan is now being included as part of Asia Pacific, and Bird’s remit now also includes Greater China and Korea, two huge customer pools for Citi and any major global banks.

I think that this line of responsibilities were tailor-made for Bird. Japan would not have been included as part of Asia if not for the fact that he is an old Japan-hand. It is also dawning on my now that one of the reasons that Richard Stanley, the old China head, had to leave Citi was probably because it was clear that the bank was gearing up to become more aggressive in China and he was not the man to lead it.

There is another line of action through the use of Zhang Shengman to mobilise all the country heads in the region. I do believe that there will be another round of people movements in this regard that will focus on putting the best people at the country manager level who can meet aggressive business goals. We will not hear about them in the regional media, but at the country level so as not to sound disruptive.

I think that in this regard, it was fortuituous for people like Richard Stanley to have left when he could. He was picked up by DBS as CEO. DBS share price has fallen in line with his various press comments saying that he will be leading the bank esentially nowhere internationally. The work needed to bring Citi’s China business back to its heels is going to require massive and international talent and personal sacrifice.

3. If there is one person on the global management team to watch, it is Sallie Krawcheck, head of Citi’s Global Wealth Management business. There were absolutely no changes made to her current role, given to her by the former chairman Sandy Weill, and which the CEO did well not to touch.

Her lack of international experience is being made up for by Deepak Sharma playing head of international for her. At the global management level, there are a few people wit very little international experience and she is one of them, and it shows in the chemistry between the different heads.

He real background was that of an analyst who became CFO. She was handed over Smith Barney to run after the analyst report scandals for which Citi paid a very high price. Although she was a formidable analyst in her time, I have not heard anything to suggest that she has also been that talented business owner and bring in the numbers herself. In any case, she was a vocal critic of the current CEO, Vikram Pandit, when he was first appointed and he has left her untouched for now.

4. The immediate impact from the restructuring is that the business line owners at the very top are now not able to hide behind opaque organisational structures. In the past, multiple reporting structures enabled a few senior people to fudge their real value to the organisation.

Obviously Ajay Banga’s own position is on the line because he will have to demonstrate performance within a 12-18 month time frame. He is taking a high risk in his career because he is now being sent out from Citigroup’s headquarters in New York, to Asia as one of the field managers. If he fails, it is not clear that he will have a bed he can make back in New York.

5. Finally, the reorganisation, as a much awaited reflection of Mr Vikram Pandit’s leadership capability, is highly commendable. Most banks around the world are configured around internal operational structures, as they see themselves to be. The customer is almost incidental to their internal politics. Banks in Thailand and Japan are like the benchmarks of how low these politically charged institutions can go in accomodating conflicting factions.

The better banks today are configured around a matrix of geographical, business and operational objectives. Until this reorganisation, I thought that J.P. Morgan Chase had one of the most effective and stable global structures for a commercial bank in this regard. Building such structures depends also on having stable people in their positions for long enough to be effective. Tenure is as important as skill in this regard.

But I believe that Mr Pandit has taken the idea of the Corporation to the next level (at least on paper) by cutting to the chase and unapologetically organising his global business around the Customer. This is a massive step in the business world in general that will be instructive to all of us.

We remember that when the previous CEO of Hewlett Packard, Carly Fiorina, was handed the challenge of restructuring a Corporation for the future, she chose to bet on value added services by investing in consulting and other complicated services, with the assumption that the Customer will spend more in aggregate on her company.

Where she failed was in mobilising her existing global sales infrastructure, who globally were configured to sell products like HP printers, rather than value added services, such as consulting. Any organisation is only as good as its sales force, its ability to sell. A lot depended on her rebuilding a new sales culture, and in the period she was there, there were too many bloodied wars in the field as seasoned sales men who held on to long term client relationships refused to move into the new culture.

Where these experienced salespeople resigned, the new sales teams had to re-connect with the customer from scratch, wasting valuable time as performance dipped for all the investors to see.

Carly’s successor, a salesman himself, put the house back in order by reinstating the traditional sales infrastructure so that HP could live to flight another day.

Pandit’s structure is a lot more simpler. The line from the “manufacturing” part of the business to the customer is a straight one, even in the more value added parts of the financial services business, namely wealth management and investment banking.

The so-called geographical and product clusters described in Citi’s press release, are wrapped around the businesses that customers want to do with Citi – namely retail, wealth management, corporate and institutional. This will enable the management to measure sales and profits by customer pools. There is really nothing else for the organisation, from the top management to the frontliners to be focused on, and that in itself is the focus.

I also think that it is unlikely that with this structure, Citi will now divest any more of its organically built businesses. The structure is now designed to extract value from the customer pools it either owns or has acquired in recent years.

6. As for its ability to compete with Standard Chartered Bank and HSBC, these appointments bring Citi back in line with these two banks in terms of the “bench-strength” of senior managers in the field. Citi used to have a strong bench-strength of locally cultivated senior managers in the 1990s, and was by far the leading bank in terms of product innovation and market penetration. It lost this position in the first half of this decade. I think that a lot of structures have been dismantled with these appointments that will enable Citi to grow aggressively in the near future if it wants to.

Also, Standard Chartered Bank and HSBC have their own respective problems. StanChart is going through an ambivalent period of its own with new senior management appointments from outside the bank by its head quarters in London, trying to gel in with the existing management pool. HSBC is still reeling from its own exposure to the sub-prime mess. HSBC’s real problem is not money, but management bandwidth because of the skills it requires from its traditional pool to just solve the existing problem.

E&OE Comments and questions welcome.

Post script: After writing this entry, I heard that Jeanette Wong of DBS stepped down as CFO to be a business head at the bank. That is not the Jeanette Wong I know. Anyone who knows the work Jeanette had done to build the investor relations (IR) for the bank would know that the share price of the bank might be affected negatively in the near future because of the skill required to keep the interest of institutional investors in this time.


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