Citigroup ramping up Asian transaction management

HONG KONG (Reuters) - Citigroup's (C.N) Asian transaction services group, which booked a $588 million profit in 2006, plans to increase staff by 11 percent this year and boost revenue by targeting more hedge funds and small and medium enterprises (SMEs).

The Asian business, which provides cash management, trade services and custody, trust and other services for securities firms and funds, is growing more than 20 percent annually and executives say first-quarter transaction volumes rose 34 percent.

"The fastest growing segment for us by percentage growth is the SME sector - it's from a smaller base but we have entered into two or three new markets in the last few years," said Anthony Nappi, head of Asia Pacific global transaction services.

Transaction services is the engine room supporting sexier businesses like hedge funds, IPO underwriting and M&A.

Citigroup's non-Japan Asian transaction services business, which has about 5,260 staff around the region, had a net profit of $588 million last year, compared with $480 million in 2005, and accounted for 41 percent of the group's total global profits.

Nappi noted that the business works with its investment banking, trading, prime brokerage and corporate banking units and even other financial institutions that turn to Citigroup for services it cannot do internally.

"We consider ourselves the banker to banks," he said.

The firm is not alone in targeting this lower profile but lucrative market segment.

HSBC (HSBA.L) (0005.HK) and Standard Chartered (STAN.L) (2888.HK) are among the banks boosting their focus on providing transaction services and loans to small- and medium-sized businesses in the region's fast-growing economies.

"I've been in the region 11 years," said Nappi. "I've seen the local corporates' level of sophistication grow exponentially -- their needs are going to grow as their businesses go from single city to multi-city to multi-region."

Some of the business is multinational firms like Citigroup following their customers to Asia.

"We work with some of the largest global retailers with business in Asia, working with their local buying offices to maximize value in their supply chain, ensuring that key suppliers get the financing they need while mitigating collection risk and improving collection times," said Ivo Distelbrink, Asia cash and trade sales head.

FOLLOWING FUND FLOWS

Citigroup is also targeting the rapidly growing Asian hedge fund industry, which has seen assets under management increase to more than $140 billion, according to Eurekahedge.

Citigroup on May 2 agreed to buy financial services provider BISYS BSG.N for $1.45 billion, making it the world's number four hedge fund administrator.

"Traditional funds are branching out into alternative investments like hedge funds, fund of funds and private equity funds and we now have the capability to handle anything they do with the global footprint and the local footprint," said David Russell, head of Asian securities and fund services.

For traditional funds, Citigroup's business is diversifying beyond serving funds from Europe or the United States investing in Asia.

"In the last year or two we have seen a lot of growth in the outflow business from Asia," Russell said. "For example, regulatory changes and tax changes for Korea allow them to aggressively market offshore mutual funds."