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My BNET Finance colleague Alain Sherter isn’t all that optimistic about the chances for a smooth exit for Citigroup (C) out of the U.S. government-debt program:

The company is still sitting on mounds of bad loans. It remains unclear exactly how much in provisions Citi might have to sock away in coming quarters to account for those losses. And the company’s shaky balance sheet suggests it may well have to raise more money.

That, of course, would affect Citi’s earnings. And unless the company’s financial performance improves considerably over the next year, it won’t be able to increase lending. Which, along with keeping Citi from going over the falls, was the entire point of TARP.

Sherter speaks for a broad section of the financial services industry, which apparently isn’t that thrilled with the bank’s plans to raise $20 billion in order to pay back its debts to Treasury, either. By mid-afternoon Monday, Citi’s common stock was falling more than 6 percent in value.

To some extent, I understand this point of view. After all, given that the bank’s TARP aid effectively amounts to leverage (which helped the bank emerge faster than it otherwise would have from its troubles), what happens when it becomes deleveraged? Can Citi still continue to grow its operations as rapidly as it did this year without a huge pile of low-interest debt inflating its revenue and operating growth?

As a matter of fact, Citi has been busy building another revenue base all year, in preparation for its TARP exit: it’s just that for the most part, it has slipped under the radar of most market-watchers. For as Citigroup gets the go-ahead to pay back its TARP aid, emerging markets such as Asia and Latin America are likely to be big beneficiaries of the firm’s aggressive growth plans to morph into a profitable world-class investment bank.

Citi’s New Growth Base: Emerging Markets

Regular readers of this blog will recall that back in August, I pointed out that Citi was the second U.S. bank to gain approval to make a market in Chinese corporate debt, an area of the Asian securities market which is growing at lighting-speeds (the other bank is JP Morgan (JPM)). In addition, I reported that Citi was making big headway with its Prime Finance unit in the region, too; a business focus which has been a big challenge to grow in the region even for larger rivals such as Goldman Sachs (GS) (you can read the story here).

For a bank, there are two choices when it comes to growth: leverage the firm itself, or invest in high-growth areas of the global economy where the returns are so outsize that the investment justifies significantly reduced operating leverage. That’s what is going on here: the reason Citi is making such huge investments in emerging Asia is that the growth of asset prices in the region shows no signs of imminently abating.

As long as emerging markets remain much more aggressive growth targets than those in developed countries, Citi can adequately achieve 2009-style growth all over again in 2010 — and with even prettier profit margins, too.

Disclosure: No positions

Source: As Citi Exits TARP, New Focus Likely to Be Emerging Markets