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Citigroup Japan: Does It Provide a Glimpse of its Worldwide Strategy?

On Friday, the regulator of Citigroup Japan ordered the bank to suspend sales activities for one month. Its retail business division cannot conduct any activity from July 15 to August 14, 2009 because it claimed that Citigroup is not doing its part in curbing money laundering. This is not the first time the banking giant encountered problems in Japan. Prior problems are mostly related to Citi’s incapability to monitor money laundering activity.

One significant event occurred in 2004 when former Chief Executive Charles Prince had bowed for seven seconds in contrition for the bank’s failures. Citigroup has also experienced legislative backlash for its high interest rates. In 2006, lawmakers passed a legislative change that caps the amount of interest rates banks can charge. From almost 30%, the amount of interest that can be charged is now capped at 18%.

It was triggered to some extent, by the number of suicides that occurred in the country because of debt problems. The same legislation permitted consumers to get refund claims from financing institutions. Citigroup shrank its CitiFinancial operations which included unsecured loans and auto loans.

Profits from Japan have always been volatile. During the first quarter of 2009, Citi’s consumer finance unit suffered from a $36 million loss though this is actually an improvement from the $86 million in losses it generated the previous year. Overall revenue fell to $162 million. In Asia including Japan, Citigroup’s earnings totaled $1.6 billion during the first quarter.
The suspension that will be imposed on Citibank might only last one month, but the occurrence of legal problems again and again is hurting the bank. Citigroup Inc. is still trying to recover from the US financial crisis that forced it to accept government bailout. The company is still stressing that its competitive advantage lies in its global presence. Asia is still promising to the banking giant despite its current troubles. Other US banks have minimal presence in the area.

So, how does the Japan market relate to the US market? In some ways, Japan provides a glimpse of what Citigroup wants itself to become. Ridding non-core business operations such as consumer finance and brokerage; instead becoming more like a traditional banking institution.

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