Vikram Pandit, who steered Citigroup Inc through a $45-billion government bailout, has staked his bank’s future on emerging markets — just as investors are pulling back. Citigroup, the third-largest US lender by assets, now earned more than half its profit from developing countries, CEO Pandit said at a March 9 conference in New York. The bank increased assets in Latin America and Asia by 16 per cent to more than $470 billion last year, adding customers in countries such as Brazil, Mexico and India.
Pandit, 54, predicted in June 2009 that Citigroup would become the “largest emerging-markets financial-services company,” a long-term bet that could pay off if growth rates keep soaring. The expansion, which coincides with two regulatory reports questioning the firm’s ability to manage risk, could also make it more vulnerable than other US lenders.
“If it grows like a weed, maybe it is a weed,” said Mike Mayo, an analyst at Credit Agricole SA in New York who recommends investors sell Citigroup shares. “They’ve had risk-management mishaps. We’re not convinced the culture has changed enough to prevent similar mishaps from occurring.”
As rising inflation threatens growth in developing countries, investors have withdrawn more than $21 billion from emerging-market equity funds this year, about 22 per cent of what flowed in last year, according to EPFR Global, a Cambridge, Massachusetts-based financial-research firm. The MSCI EM Index, which tracks shares of 812 companies in countries including Brazil and India, has fallen 2.9 per cent in 2011 after more than doubling during the two previous years.
‘Risks of overheating’
Citigroup, which previously has stumbled in Japan and Latin America, costing the bank at least $4 billion in writedowns, operates in more than 100 countries. It has more than 50,000 employees in Asia and 28 million customers in Latin America, according to the New York-based company’s website. Pandit, who declined to be interviewed for this story, acknowledged in a speech in New York last month that many emerging economies are “operating at or near capacity, and there are risks of overheating.”
Still, he has framed his strategy in emerging markets as one that aims to capitalise over the long run on the rise of a new middle class. Consumers in developing Asia may spend $32 trillion in 2030, compared with $4.3 trillion at the end of 2008, according to an August 2010 report by the Asian Development Bank.