By Morgan Smith
Essentially what Citigroup has done is launch Renminbi Letters of Credits for Importers and Exporters (RMB LCs) to offer a trade services solution suite available in RMB. What implications does this have for Citigroup's Latin American clients? It means that they will be able to settle, receive and issue RMB denominated LCs with their Chinese trading partners.
At the same time they will also be able to have access to a variety of new options in terms of trade financing, trade processing and risk mitigation. LCs are the most important means of settling transactions in Chinese-Latin American trading. This is despite the fact that the trade flows between China and Latin America have become progressively more diversified. Citigroup is making the entire process far easier by allowing its Latin American clients to settle their debts with China directly in RMB. This will go a long way to optimizing international trade between Latin-America and China.
To me, this seems to demonstrate the bank's eagerness to cash in on the current push to make the yuan a global currency. This is a sensible thing to do, I feel, as it will make a difference to the bank's global influence.
This move on the part of Citigroup marks an important landmark in the trade situation between the two regions, namely Latin-America and China. Consequently, we can look at Citigroup as an innovator in the market. To me this is something well worth having in a stock and makes Citigroup a good option to add to your portfolio. Citigroup claims that its clients have become "a market leader and a competitive force solely through their partnership with Citi."
This may or may not be true, but what it obvious to me is that this optimization of the company's role in international trade will have a significant impact on its revenue and will therefore in turn have a significant impact on whether or not the stock is a good long-term option. This is not the first move that Citigroup has made to establish the presence of its Latin-American clients in Asia. Recently, it also launched the Citi Transaction Services' new Latin America Trade Desk in Asia.
To me this seems like a sensible thing for the banking company to do. Latin America forms a big part of Citigroup's clientele base as it is a big bank in this part of the world. In addition ingratiating itself with the Chinese market, one of the fastest growing emerging markets out there, also has the potential of benefiting the company in the long term. Not to mention the fact that this makes its business dealings easier as well. A focus on emerging markets seems to be the most sensible approach to business in the current climate.
HSBC Holdings (HBC) is still the biggest banking presence in China at present and Citigroup has a long way to go to catch up with the larger institute. However I feel that with its current strategy it is most certainly on the right track to succeeding in this regard. This reiterates my belief that Citigroup is a stock to watch, as it climbs up the ranks in large international markets.
Wells Fargo (NYSE:WFC) recently appointed Kent Christian as the new president of FiNet. This shows the company's renewed focus in its independent brokerage business. Christian has a lot of talents that will make this aspect of Wells Fargo's functioning more attractive to a wider range of different people. At this time, the highest potential for growth is likely in finances, so the move is a sound one on the part of the banking company. Investors should keep a close eye on developments in this arena.
JPMorgan Chase (NYSE:JPM) is not having a very successful year so far. It will be a while before its investors trust it again following the $2 billion loss it recently experienced. This was directly due to a bad hedging strategy. Now its regulators are also under close scrutiny due to the loss and the company's executives may be required to pay back the compensation they have received as a way to deal with the situation and punish the company. The loss could be as much as $5 billion before the situation reaches its conclusion.
I feel that US Bancorp (NYSE:USB) has the best strategy at present. Although JPMorgan and Wells Fargo have similar items out there, US Bancorp seems to me to be the only bank making an effort to simplify banking through mobile devices AND its name is not being sullied by bad press. This has made a difference in terms of what bank the general public chooses. The company is attracting more and more people to its doors. In the long run, this will result in an increase in revenue for the company making it a great option.
Citigroup may get corralled in with the bad labels of its larger competitors. However, the bank is certainly an innovator and success will come through this quicker than some bad news stories will work to bring it down.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.