Citi plans to establish Chinese investment bank unit amid IPO surge: Bloomberg

October 22, 2020.
In this Feb. 8, 2019, file photo the logo for Citigroup appears above a trading post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew, File)

In this Feb. 8, 2019, file photo the logo for Citigroup appears above a trading post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew, File)

is planning to create an investment banking unit in China as the country claims an increasingly large share of the global equities market and is buoyed by a surge of initial public offerings, Bloomberg reported Thursday. 

Top Citi executives in Asia are close to convincing the bank’s leadership in New York to submit an application to Chinese authorities to form an investment bank in the country, though a final decision has not yet been made, according to an anonymous source cited in the report.

Citigroup spokesperson Danielle Romero-Apsilos declined to comment on the bank’s China plans. 

The purported move comes as China liberalizes foreign investment rules and hosts increasingly lucrative initial public offerings, such as the upcoming Ant Group IPO, which is expected to raise $35 billion through a dual listing in Shanghai and Hong Kong. 

Citigroup, JPMorgan Chase and Morgan Stanley will reap a collective $300 million as co-sponsors of Ant’s IPO, the Financial Times reported in August. 

Exchanges in Shanghai and Shenzhen so far this year have hosted more than $47.5 billion of IPOs and listings for firms that have shares already trading elsewhere — a larger proportion of the global total than any other year, according to Refinitiv data shared with The Wall Street Journal. 

In addition, China is the only major world economy not expected to shrink this year, with the International Monetary Fund predicting a 1.9% expansion.  

However, banks’ plans to expand in China come amid heightened tensions between the U.S. and China over the Communist Party’s crackdown on civil liberties in Hong Kong, threats to invade Taiwan and detention of Uyghur Muslims in Xinjiang, among other issues. 

Citi’s plans could also be complicated by recent U.S. government scrutiny of the bank, which has paid over $2.6 billion in regulatory fines over the past six years, according to an investor suit filed earlier this week. 

Most recently, the New York City-based bank paid a $400 million fine to the U.S. Treasury’s Office of the Comptroller of the Currency for risk management missteps and agreed to seek regulators’ approval for significant expansions in the future. 

Some Citi executives are worried that U.S. regulators could disapprove of the company expanding in China as it skates on thin regulatory ice at home, according to the Bloomberg report. 

Citigroup posted a 35% year-over-year slide in profit to $3.2 billion during the third quarter of this year.

While other Western banks such as the U.K.’s HSBC and Standard Chartered rely heavily on their Chinese operations, Citigroup’s is relatively tiny. 

Roughly $1 billion of the bank’s yearly revenue comes from China, according to Bloomberg data. Its China-incorporated bank oversees about $27 billion in assets — or about 1% of Citigroup’s total $2.2 trillion in assets. 

Establishing an investment bank in China would be a reversal of course for Citigroup, which reportedly opted out of creating such a unit last year due to the costs of hiring 35 people as required by Chinese law.