Reto Faber, head of Direct Custody and Clearing EMEA at Citi talks about the acquisition of ING Securities Services in Central and Eastern Europe (CEE) and how it fits with investment bank’s transaction services strategy.
Why have you acquired ING Securities Services business in the CEE region?
RF: We reacted to ING’s strategic decision to exit the region. We have had on and off conversations with them for a while because we were interested in their franchise. They are no doubt the largest provider in the region, closely matched by Citi. But like a number of other European banks that have regional custody franchises, it is natural for banks with sub-regional scale to review this business segment given balance sheet pressures and the desire to de-risk, deleverage and focus on core business. All of these considerations are taking place in the context of the regulatory changes such as T2S and Basel III. For a number of years we have believed in strong potential for consolidation in the direct custody business.
We began serious dialogue with ING late last year and we were fortunate to do so because ING’s business has some excellent overlap with our business today. Bulgaria, Czech Republic, Hungary, Romania, Russia, Slovakia and the Ukraine all form part of our agreement.
Citi already has a custody business in six of the countries, and this transaction adds Bulgaria to our proprietary custody network, bringing it to 62 markets. This transaction is ideal as there is strong overlap in Citi’s and ING’s expertise, limited execution risk and provides an optimal solution for the clients. ING has been very focused throughout the transaction on protecting their employees and clients. They were looking for a partner who was able to do both. Their client base very closely complements ours: We have a strong position in the broker dealer segment while they have a strong position in the global custody segment. So combining the two allows us to be leader of the market in the region.
Comment on personnel changes as a result of the acquisition?
RF: The total package is 130 people and we are looking to take on a significant portion of that group both on the ground as well as some of the regional team. We are now going through the details of that and the who and how we can integrate the core staff. It is important for us to have demonstrable continuity in relationships. Therefore we can say a significant component of that population will come across to us.
Citi has been steadily growing its securities and fund services franchise by going direct or acquiring other businesses. How has this strategy been affected given the restructuring processes within Citi Transaction Services (CTS) in the last year?
RF: We are very committed to our Securities and Fund Services business. We are aiming for a gradual and measured expansion of the network as well as gradual and measured expansion of the market share so it’s important to be the leading or among the leading providers in any one of these markets. Provider consolidation has offered us an opportunity in these markets, but at the same time, we will continue to look at gradual network expansion by building out our capability. We are looking selectively at African Markets and to building out further in the Middle East. This is a continued strategy of measured expansion in markets where we think there is large enough opportunity to justify the investment over time.
Has the recent restructuring of CTS changed the focus of the securities and fund services business?
RF: Our Securities and Funds Services and Treasury and Trade Solutions businesses are now managed on a standalone basis and report directly to Jamie Forese, head of our Institutional Client Group. These businesses now have more direct access to senior management and increased ability to collaborate with Citi’s other businesses.
Comment on the future growth of the business.
RF: In our SFS business, we have consistently been able to conduct small, bolt-on acquisitions, which give us extra scale and capability and are digestible. We value acquisitions that add to our business in a meaningful way and in the regions where we want to grow.