Citigroup Sees Turnaround For US Retail Banking By 2014

U.S. banks have been dogged in recent years by tougher regulation and sluggish loan growth. But Citigroup Inc. (C) believes things will turn around for its U.S. retail banking operations.

By 2014, "people will really see a difference" in improved customer service and product sales at Citibank branches, U.S. retail and commercial banking chief Cecilia Stewart said in a series of interviews last week. "We'll beat all our competitors in productivity and client satisfaction," Stewart said, while revenue growth will make retail banking, "I can definitely say, much more profitable than pre-crisis," she said.

She has set forth goals for this year of "Double-digit loan growth, high-single-digit deposit growth, [and] significant improvement" in customer service.

Citi invested more than $1.5 billion last year in its worldwide consumer-banking operations, a significant share of it in the U.S. Stewart's efforts will show whether Citi can finally replicate its retail banking success abroad, or whether revenue in its home market will continue to suffer from run-down branches and troublesome service.

Citi is the nation's third largest bank. But with $147 billion in retail deposits and 1,016 branches, Citibank's U.S. retail banking business is roughly the size of a regional bank like Capital One Corp. (COF), which has 982 branches. Wells Fargo & Co. (WFC) has 6,370 branches, the most in the U.S., according to SNL Financial.

Citi serves 3.7 million households. Revenue from consumer banking in North America fell 4%, to $5.1 billion, last year. Citi doesn't break out revenue for Citibank's branch business anymore, but Stewart said revenue in branch banking grew. In 2006, the year before the crisis hit Citi, Citibank's branch banking business generated revenue of $3.1 billion and a net income of $380 million.

"We feel really good about the momentum we have right now in terms of revenue growth." Checking accounts are up, she said, and deposits rose 2% last year, according to Citi's fourth quarter earnings report.

Sanford C. Bernstein & Co. analyst Kevin St. Pierre wrote in a research report in November that Citi did well in growing deposits per branch over the last five years. Such "same-store sales growth" was up 5.5% last year--compared to Bank of America's 1.5% and Capital One's 3.7%.

But consulting firm cg42 LLC, which surveyed thousands of bank customers, found that 9.8% of Citibank customers are likely to switch banks over 12 months, possibly taking as much as $33 billion of deposits with them. "Customers rate them particularly badly in areas of basic customer service," said Stephen Beck, cg42's managing partner.

Stewart joined Citi in January last year, when she was lured away from Morgan Stanley (MS) by global consumer banking chief Manuel Medina-Mora. In 2010, Citi Chief Executive Vikram Pandit handed control of the U.S. retail bank to Medina-Mora, whom he had repeatedly praised for running Citi's large Mexican bank.

Medina-Mora set the strategy around "being relevant in the top [metropolitan areas]," said Stewart. "We weren't renovating branches, we kept changing strategies." In the branches, Citi had "no consistent message," she said.

Citi started to invest--and made some progress. Better technology and more focus improved cross selling. Since last year, selling more products to existing customers can add hundreds of dollars to a teller's pay, though compensation takes into consideration whether customers put money into the new accounts or use the credit card, so employees don't sell products customers don't need, Stewart said.

Customer satisfaction is now measured monthly in every branch, and "can take compensation up or down 20%. It's a real pop if you do well," she said.

Last year, Citibank hired 150 bankers to cater to premium customers and plans to hire about 60 more this year. Citi has 287 financial advisors in branches, and plans to hire up to 50 financial advisors this year.

The bank opened 19 branches this year, including a large, flashy--and expensive--flagship branch at Union Square in New York. Citi plans to open about as many branches this year as last year, mainly in California and New York. Citi closed three branches last year and expects to close five this year.

It already opened a flagship branch this month on New York's 42nd Street; San Francisco and Los Angeles will get one by the end of this year. Older branches are being renovated.

Stewart conceded her to-do list remains long. "We are not where we want to be" in customer service or holding on to customers. "We have inconsistent performance," she said. "We had, and still have some, very antiquated technology," and Citi doesn't sell as many products to its customers "as our competitors do."

The Citibank of old was about "products that were wired and piped" down the branches, Stewart said. Now it wants to be a "client-centered organization. We are we are heading well down that path."

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; [e-mail]