K.Braden (Citigroup): «Brexit, digital and ESG post-Covid will open new venues of opportunities»
Citigroup Europe Cluster Head based in Frankfurt explains how Citi prepared for hard Brexit and is ready for post-Covid EU
di Isabella Bufacchi
7' di lettura
Kristine Braden, Citigroup Europe Cluster Head based in Frankfurt, in this interview explains how Citi prepared for hard Brexit: it has been moving from London to Europe staff, clients, agreements, clearing and coming up it will transfer trading, liquidity, funding, balance sheet and risk positions. She also gives her views on M&S, Capital Market Union, NPLs, Europe post-Covid.
Is Citibank prepared for Brexit? And has your strategy towards Continental Europe changed because of Brexit?
We have been in Europe since 1915, and by now we have more than 13,000 employees with offices in 23 European countries. There are banks that are opening their first headquarter in Continental Europe now, . because of Brexit. We are in a very different starting position for Brexit, compared to many other banks. We are already well established in Europe. Our first European headquarter was opened in 1916 in Italy, in Genoa and one century later in 2016 we created a pan European bank in Ireland which unified our banking business across 22 countries in the EU. (23rd is Switzerland)
How will your Europe-based banks change after Brexit?
The banking system in the US is organized differently as compared to Europe: in the US we have banks and broker dealers which are very different financial institutions. So in 2018 we converted our German bank into a broker dealer. This allows us to provide seamless services to our clients across our apital markets, securities services and M&A advisory businesses. Our German bank now has 4 branches in Italy, France, Spain and also a small branch in the UK. With this structure, we are able to move our broker dealer business from London to Europe post Brexit.
Did you prepare for a hard Brexit or soft Brexit?
Four years ago we had a big debate on Brexit, on how we should prepare for it. And we decided to prepare for the worst and hope for the best. So we prepared for a hard Brexit and I think it was wise. We wanted to make sure we would operate for our clients as much as possible in any new dimension. We started with moving our product capabilities from London to Frankfurt. And we also have redefined how to work with EU clients, making sure that we re-establish our agreements, from a legal point of new. For example, we had to transfer our financial agreements of our European clients operating in London with us, from the UK entity to Germany.You moved client agreements.
Have you moved the liquidity from London to Continental Europe?
Let me walk you through the whole process. We decided first to move staff and indeed we have moved about 250 people from London to Europe. It might look small, 200-250 compared to 13.000 employees in the EU, but the moving was targeted, some on risk management some on product management... But we were already in Italy, France, Spain, so we just strengthened our presence by moving staff there. Other competitors are moving now to one European center. In our case we were in different position. After staff, we have brought capital to Europe from the UK in order to support the move of client businesses from London. And then we will move liquidity too from London to Europe.Our moving follows the financial market infrastructure: for example clearing houses. We had first to reconnect with all the clearing houses in Europe. In Germany, it is Eurex for example. And then we will also be moving the trading. Clearing and trading do go together.
So clearing, trading, clients are moving from London to Europe. What else?
Let's say, from Day One, from January 1st 2021 we have to be compliant with all Brexit laws and make sure we continue our business since that day. For most banks trading from London to Europe will be moving starting from Day 2: then you will start to see more of the trading volumes in European assets: largely European commercial paper, European equities, European government bonds, everything that goes through in clearing houses will start to move from January 2021 and beyond. The funding will have to move from London into Europe too, to support liquidity, clearing and trading: when we'll start to do the market, to do the trading in Europe, we'll need liquidity as well. To be clear: the balance sheet and the risk positions over time will move to Europe from the UK. Most banks operate through remote booking and back to back moving models and this will continue: throughout Brexit, risk management in some cases will continue to be back to back to London but eventually the risk will get taken in Continental Europe. This is the transition we are all into now.
Europe post-Covid: how important is Europe in your global strategy?
We are a long term player in Europe. We are very committed to Europe. We have been here over 100 years. Citibank is the most global bank in the world. Our presence in Europe is core to our global strategy. We serve companies from all over the world that want to do business in Europe. A lot of our US companies are very active in Europe. The first thing for us is making sure we can serve our global clients in Europe. We also serve European companies in Europe and out of Europe, we give them access to our global network whether they are in Italy or Germany. We make sure we can provide global solutions and facilitate business. We work with the largest companies in the world. Moreover, we are now investing in new areas in Europe. We started opening more businesses to help SMEs in the core interests coming out of the Recovery Fund: digitalization and ESG. We are starting to develop relationships with young European digital companies to help them grow and create the new digital future in Europe.
US banks have a competitive advantage on European banks, as the US capital market is much more developed and Europe is overbanked and too commercial bank-centric. Do you agree?
We are a huge proponent of the Capital Markets Union, business thrives when there are fewer frictions on how capital markets operate. For example we welcome the new listing regulations that simplifies how companies list and this is very important. A lot of financing in the US happens in the capital markets while Europe is still very much a bank loan market.We can help to advance the capital markets in Europe, to the benefit of many companies, especially smaller companies that need to receive more growth capital to invest in the future: and at the moment it is not a very popular instrument . We can contribute to improve the CMU. We see it as a great opportunity for Europe to continue to grow. And also for Europe to develop more as a financial center, especially after Brexit. This is the moment for Europe to progress with the Capital Markets Union.
Are there areas or markets in Europe where you are not getting into?
The main place where we do not spend a lot of time on is consumer banking. We have only one consumer bank and that's in Poland. Across the rest of Europe we decided to be an institutional bank working with the largest corporates, public sectors, financial institutions and investor clients. This is were we have our best capabilities. We are also investing in our product capabilities and have opened new custody arrangements for the Nordics.
You are not after the huge European savings?
We are not. But we would like to find ways to unlock savings through the capital markets.
How are you coping with European negative interest rates?
We are used to it by now. As we are a US bank we are mostly dollarized. But we keep an eye on costs of negative interest rates in Europe. We have a profitable business model by serving large corporates so we have been able to avoid the erosion of profitability due to negative interest rates. We see this is a big challenge for European banks.
Profitability is a big word in the European banking system. And also dividends: what is your policy on dividends?
We have chosen to be prudent and watch: there are new accounting standards such as CECL and IFRS9 on risk and we have to be thoughtful, cautious about Covid-19. Most banks are prudent on dividends. However we have not seen yet a materialization of NPLs rise in Europe, our balance sheet in Europe is looking good and most (European) banks are in similar situation. But it is unavoidable, NPLs will rise, some sectors have been heavily hit by Covid-19: but so far we feel ok
How do you see the M&A business developing in Europe?
We very much care about being advisors our clients in all areas so now we are investing in new talents in this area, in M&A. In France we just announced a new appointment and new appointments will be announced in the coming weeks. Our interest is to be a full adviser to our clients and M&A is part of it. We are responsible for the M&A European products here in our offices and we will continue to invest in people. We have a good pipeline in M&A in Europe. With Covid the business has slowed down but next year we expect a resumption of activity.
Next year indeed: what about next year, how do you see the recovery post-Covid in Europe in 2021?
Time will tell. With geopolitical changes such as Brexit we will all be investing more in Europe, its financial infrastructure, European clients. Brexit will open new venues of opportunities, that will be a very interesting time. Which banks will be the new winners in Europe? We hope Citibank will be a leader in that. Looking at 2021 and Covid-19, a German company has created the vaccine and this is new hope. We are all cheering on the European project that Covid-19 will be a catalyst of further integration in Europe and further investments in the two top priorities of Europe's post-Covid recovery, that is digital and ESFG. And we at Citibank we like to be a big part of this development, as it is good for Europe but also it is good for the planet. We are very much a believer in the European project and hope we can play our small part to make it happen.