Witnessing a retreat by its European counterparts,
) is set to begin commodity trade finance business in the market,
according to a Financial Times report. Citi would initially involve
itself in financing deals for the energy sector but would later
consider venturing into other sectors such as metals and
commodities like wheat.
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Amidst the Eurozone crisis, European banks are scaling down their
presence in commodity trade financing business. This comes as they
restrict their requirement for scarce dollars. Also, the need to
comply by the stricter capital norms is a major reason. As a matter
of fact, European banks such as BNP Paribas and Crédit Agricole
have already trimmed down their finance business for commodity
This retreat by the European banks is opening up avenues for their
U.S. counterparts like Citi and
Wells Fargo & Co.
), who are capitalizing on the deleveraging activities. In fact,
Wells Fargo is active on this front and has been making a number of
strategic asset acquisitions from the European
Additionally, Citi has made such deals in the past, although on an
ad hoc basis. But this time, the company wants to improvise a notch
higher. Van Broekhoven, who was previously employed at
Deutsche Bank AG
), has been hired by Citi to lead this unit. Within the next three
years, Citi aims to generate over $200 million in net income from
this new business.
Citi has already implemented strategic reengineering efforts in its
business and has been shedding non-core assets over the past few
years. Strengthening its core franchisee is a priority and trimming
of assets frees up of its resources so that they can be deployed in
its core business.
We believe that capitalizing on the deleveraging activities of the
European banks is a strategic fit for Citi and its expansion of
commodity trade finance business would offer opportunities to
augment its top line. It is an attractive business opportunity and
this environment furnishes it with significant scope to increase
its scale and strengthen its market share and hence we remain
Citi currently retains its Zacks #3 Rank, which translates into a
short-term Hold rating. Considering its fundamentals, we have a
long term Neutral recommendation on the stock.