13th June 2024

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Business Industry and Financial

Citigroup plans launch of China-based investment bank

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Citigroup plans to deepen its involvement in China’s financial markets with the launch of an investment banking unit in the country, even as rivals grow more cautious there.

The large US bank intends to launch the wholly owned China-based unit by the end of the year, according to a person familiar with the situation. The business would expand Citi’s business in China, which already includes corporate lending and other banking services.

Citi’s application for a brokerage license was conditionally approved in late December, a decision that enables it to start hiring employees for the new unit, according to a filing on China Securities Regulatory Commission’s website and the person familiar with the situation.

Reuters was the first to report the filing as well as other details of Citi’s expansion plans. Citi declined to comment on the filing.

The move comes as other large US banks are becoming more tentative about operations in China. Goldman Sachs chief executive David Solomon, speaking at the Financial Times’ Global Banking Summit in November, said that his bank was reducing its activities in the country because of growing tensions between Washington and Beijing.

Five years ago, Goldman was executing a strategy that was more “growth at all costs in China”, Solomon said. “Today, it’s a more conservative approach and we’ve probably pared back some of our financial resources there, simply because there’s more uncertainty.”

Western banks are struggling to gain traction in China as geopolitical tensions and the country’s slowing economy undermine efforts to tap into one of the world’s largest markets for initial public offerings.

Official data shows foreign investment banks worked on three out of 313 IPOs in China last year. Goldman Sachs and JPMorgan Chase have completed just three IPOs in Shanghai since they in 2021 became the only two US banks to open wholly owned investment banking units in China.

The Chinese government’s growing intervention in the financial sector has also made foreign banks reluctant to expand their footprint in the world’s second-largest economy. China’s stock and banking regulators have in recent years asked foreign banks in Shanghai and Beijing to study Xi Jinping Thought, the mantra of the president, while trimming salaries as part of the common prosperity campaign.

At Citi, chief executive Jane Fraser has continued to reiterate the bank’s commitment to its Chinese operations. Fraser travelled to meet regulators in China last year and was one of a number of top US executives to attend a dinner with Xi in San Francisco in November.

Citi, which had previously offered investment banking services through a local partner, applied for a Chinese brokerage license in late 2021. The application has been held up by a Chinese data law, passed in 2021, that requires standalone infrastructure for foreign firms to start a securities business.

Chinese regulations also require foreign owners to hire at least 30 employees. Citi’s plan is to expand hiring at its China operations beyond the minimum requirement, according to the person familiar with the situation.

The bank’s plan to expand in China comes as Citi undergoes its largest restructuring in more than a decade, a big part of which is to reorganise its management around the lines of business rather than geographic regions.

Citi is expected to provide more details on the restructuring when it announces results late next week. Having already announced hundreds of lay-offs, thousands more job cuts are anticipated in the next few months.

Video: Citigroup and the ‘financial supermarket’ experiment | FT Film