Citigroup Inc. Chief Executive Officer Vikram Pandit, who for the past two years has championed the U.S. bank's “globality,” may be getting a new mantra: locality.
Citigroup Inc. Chief Executive Officer Vikram Pandit, who for the past two years has championed the U.S. bank’s “globality,” may be getting a new mantra: locality.
Citigroup, which claims 2,500 of the world’s 3,000 largest corporations as clients, now says it also is targeting U.S. companies with less than $20 million of annual sales, and plans to hire about 200 bankers by the end of 2011 to court them. That would bring the number of small-business bankers to about 500, or one for every two North American branches.
“It’s a renewed focus for us,” Raj Seshadri, 45, head of small-business banking for New York-based Citigroup, said in an interview. “We feel we can help business owners and the economic recovery, and there’s money to be made for our shareholders.”
Citigroup employed about 258,000 people as of Sept. 30. Expanding the bank’s focus to include doctors, restaurants and cabinet makers alongside Coca-Cola Co. and wealthy individuals won’t be easy, says Randy Dennis, president of Little Rock, Arkansas-based DD&F Consulting Group, which advises banks with less than $15 billion of assets on risk management and business strategies.
“You’re going to have inventory loans, you’re going to have floorplan financing for different types of dealerships, you’re going to have receivables lending, you’re going to have lines of credit for businesses to make payroll,” Dennis said. “It’s totally different, and it requires a great deal of monitoring.”
Big Banks, Small Firms
The four largest U.S. banks, which also include Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co., have been criticized by some entrepreneurs for tightening credit to small businesses after taking a combined $140 billion of federal bailout money. A record 41 percent of small business owners say they can’t get adequate financing, an increase from 22 percent two years ago, according to a July report from the National Small Business Association.
President Barack Obama in September signed the Small Business Jobs Act, creating a $30 billion program to help community banks make more loans to small companies. “When our small businesses don’t do well, America doesn’t do well,” Obama said last month after touring Woonsocket, Rhode Island-based American Cord & Webbing Co., which makes cords and fasteners.
Bulk of Lending
Banks with less than $10 billion in assets make 56 percent of the country’s small-business loans, according to the Independent Community Bankers of America. Larger banks are now trying to muscle in as losses stay high on home loans and commercial mortgages, and new regulations limit fees and interest rates on credit and debit cards.
Bank of America, the biggest U.S. bank with $2.34 trillion of assets, plans to hire 1,000 employees in the next year to cater to companies with sales of $3 million or less, Chief Executive Officer Brian Moynihan, 51, said last month.
Citigroup, which had to get a $45 billion bailout in 2008, was still 12 percent owned by taxpayers as of Oct 1. The bank has about $2 trillion of assets overall. Wells Fargo, ranked fourth by assets, says it’s the nation’s biggest lender to small firms.
Small businesses are attractive customers because they use credit lines that pay “nice fat fees” and make deposits “at little to no interest rate,” said Ken Thomas, an independent bank consultant in Miami. They’re wealthier and more sophisticated than typical retail-banking customers, he said.
“It’s much easier to deal with somebody with six figures than Grandma or somebody in foreclosure,” Thomas said.
Default Rates
That’s not to say small-business lending is less risky. While bank regulators don’t compile default rates, the biggest lenders reported charge-offs of 4 percent to 14 percent tied to small businesses.
Unlike in real-estate lending, the collateral on most small-business loans “could be loaded up on dollies and moved out,” said DD&F’s Dennis. “Or they could have bogus receivables,” he said. “If the economic malaise continues, then there are going to be a lot of situations out there where small businesses do stupid things to survive.”
Bank’s Commitment
“We believe small business lending is important,” Pandit, 53, said in a speech last month in Brooklyn. Small businesses are “at the heart of” America’s economy, he said.
It’s a point he didn’t make a year ago, when he gave investors an overview of the company and mostly discussed the firm’s ability to serve “the largest multinational firms in the world” alongside affluent consumers. He didn’t mention small businesses.
“We don’t really have a very big small-business portfolio in the U.S.,” Pandit’s chief financial officer, John Gerspach, said in January.
Citigroup has since increased its lending to small businesses, Seshadri said, declining to disclose the total amount of outstanding credit to them.
This year through Sept. 30, the company’s Citibank unit has made about $4.5 billion of new small-business loans in the U.S., about the same amount as for all of 2009, she said. The figure includes loans, commitments, credit lines and credit-card lines, as well as financing for small companies that supply goods and services to Citigroup’s corporate clients, she said. She declined to say how much small-business credit was retired or refinanced.
Physics Degree
Seshadri, who has a doctorate degree in physics from Harvard University and previously worked as a consultant at McKinsey & Co., joined Citigroup in 2008 as global head of strategy, according to a biography provided by the bank. She was appointed in January to run small-business banking within the company’s North American consumer division, headed by Manuel Medina-Mora.
Citigroup’s 1,000 North American branches, concentrated in the northeastern U.S., Florida, Texas, Illinois and California, are in dense urban areas with the largest number of small businesses, Seshadri said.
“Geographically they’ve got it, and if they can hire the right people, it could be a home run,” DD&F’s Dennis said.
Pandit’s small-business push probably won’t make a material difference in Citigroup’s overall profitability, said Kevin Mulvaney, a former Bank of Boston executive who’s now a small- business consultant in Norwell, Massachusetts. The North American consumer division produced $231 million of profit during the first nine months of this year, or 2.5 percent of the company’s total.
The effort is more likely to help drum up political goodwill, said Mulvaney, who’s also a lecturer in Babson College’s entrepreneurship division.
“This banking industry is desperate for positive publicity,” he said. “The politics in the U.S. are such that the only credit a bank is getting is for showing small businesses that they’re there to support them.”
