Why Citi Can't Be a Global Universal Bank

Vikram Pandit still needs to do some work on the Vision Thing, I think. His big idea, as unveiled on Friday? Citigroup is - wait for it - a "global universal bank". At this point, he's perilously close to a tautology masquerading as a strategy.

"Global universal bank," as a concept, is not entirely meaningless, however. It's just impossible to achieve.

A universal bank is a soup-to-nuts operation, something which provides banking services to everybody from cash-poor individuals to huge multinational corporations. And there are a few national universal banks: Deutsche Bank in Germany, for instance, or UBS in Switzerland. Even Citigroup can be considered a national universal bank in Mexico.

But in the US, there aren't any universal banks. If you just got back from the Berkshire Hathaway AGM, for instance, you might have noticed that there is no Citibank in Omaha. Look down the ten largest corporations in the US, according to Fortune, and one of them is Citi; of the other nine, four are in places without a Citibank. And that's not just because some of them are based in obscure places like Bentonville, Arkansas; huge cities like Detroit and Seattle have no Citibank.

If you can't even be a universal bank in the US, it's a bit silly to suppose that you can be a universal bank globally. Besides, Pandit is considering selling off Citibank Germany - how can you be a global universal bank without retail operations in Germany? But then again, Citibank doesn't even have much in the way of a retail presence in the UK, either: it never seems to be able to make up its mind whether it actually wants to do retail banking in much of the world. Poland, yes; Mexico, yes - but those two were by acquisition. And when Citi did have a strong organically-grown local presence, like it did in Paraguay, it sold most of its branches to ABN Amro.

In order to come close to being a global universal bank, Citi would have to grow a lot - probably by an order of magnitude. And long before it got there, its regulators would step in to stop it getting any bigger. But in any case, it's shrinking. It needs to work out what it's going to concentrate on, and do that very well. And deciding that it wants to be a "global universal bank" is not a useful way of doing that.

Update: A couple of good comments over at Seeking Alpha. First this, from Syndicat:

Citi is not even a statewide institution. In 2006 Citi sold its upstate banks to M&T, effectively leaving Buffalo and Rochester, the #2 and #3 cities in New York State.

And then this from Corossis:

I don't think you need to be in every big US city to be considered 'universal'. To me, it just means that you have enough retail operations to be substantially consumer deposit-funded.

If Corossis is right, then a universal bank is basically just a corporate bank with a relatively low-cost funding base of checking accounts. Try telling that to HSBC.