????Citigroup's global expansion is starting to yield some choice dividends, but headwinds still exist. The latest mark in the win column comes courtesy of the Chinese government, which last week authorized Citi to offer credit cards to the nation's rapidly growing consumer class. That would make Citi the first non-Chinese bank to offer a credit card there on its own.
????The move expands the bank's international retail and commercial footprint as it seeks revenue growth from outside the United States. It also further expands the chasm between it and its big rival, Bank of America, which is focusing more on rightsizing its domestic retail operations as opposed to growing overseas.
????Citigroup's chief executive, Vikram Pandit, was all smiles as he touched down in Asia last week. After making his way through Korea, Pandit landed in China to celebrate the bank's 200th anniversary. It was a birthday that just a couple of years ago looked unattainable as the bank teetered on the edge of collapse after absorbing tens of billions in losses connected with the bursting of the housing bubble.
????But now it's all about the future. The U.S. megabanks that survived the 2008 tumult have somewhat recovered and are now trying to readjust and refocus their business for the current operating environment. For example, Bank of America (BAC) is concentrating on solidifying and rightsizing its domestic retail banking operations, while Morgan Stanley (MS) is looking to expand its domestic retail brokerage services.
????For Citigroup (C), the answer has been to become a truly global retail and commercial bank, diversifying its revenue stream in an attempt to limit its exposure to the U.S., where the market was maturing and profit margins were being squeezed from increased regulations. Citi already derives more than half of its revenues from outside the United States, so it knows how to expand in new markets. It has spent the bulk of its capital expenditures over the last few years on building out its operations in Asia, Latin America, the Middle East and Eastern Europe, with a major focus on expanding its retail presence in China.
????The results so far have been mixed. There has certainly been an increase in business for Citi overseas compared to North America, at least in the commercial banking group. Citi's lending to corporations and people abroad is up 22% in the last two years, while it is down 6% in North America. Meanwhile, deposits grew 14% abroad in the last two years and fell 2% in North America.
????But overall revenue and net income from Citi's international operations has been less than stellar. International consumer banking revenue was up a slight 2% to $4.7 billion in the fourth quarter of 2011 versus the same period last year. Meanwhile, overall international net income fell 16% to $788 million during the same time period.
????Dig deeper into the numbers, however, and it doesn't look so bad. The steep drop in net income was due in part to a $72 million build in credit reserves needed to cover all the new loans made during the year. Revenues then perk up a bit when you strip out Europe and the Middle East -- especially in Asia, where there was a 5% increase in revenue. Operating expenses remained elevated throughout the year but the net operating leverage for the international segment turned positive for the first time in a while during the third quarter, meaning that revenues were finally outpacing expenses.
