Profits up despite crisis at Citigroup Irish unit

CITIGROUP’S MAIN Irish unit delivered a 42 per cent rise in pretax profit to €531.6 million last year, defying the turmoil that led its troubled parent into the arms of the US government.

The increase in profits at Citibank Europe, based in the IFSC, came as the unit took on new responsibilities as the corporate headquarters of Citigroup’s consumer and business banking operation in the Czech republic.

The unit expanded the reach of its corporate headquarters business last January, taking on responsibility for operations in Romania, Hungary and Slovakia.

Although the US government took a stake of almost 34 per cent in Citigroup following two taxpayer-funded bailouts totalling $45 billion (€29.9 billion), accounts newly filed for the Irish operation show that it delivered double-digit profit growth for a fifth successive year.

The activities carried out by the Irish unit – which provides corporate banking, financial and transaction services to commercial clients and engages in research and development – enabled the business to steer clear of the worst ravages of the disruption that led its parent to report a net loss of $18.72 billion in 2008.

“It doesn’t have great risk attaching to it,” said Citibank Europe chief executive Aidan Brady of the business mix in his organisation. “It’s probably a good business to be in.”

Operating profit rose 50 per cent to €827.9 million, the accounts say, while post-tax profit rose to €472 million from €326 million.

However, Citibank Europe incurred €67.83 million in credit losses due to the turmoil in global markets. There were no comparable losses in 2007. “Market disruptions have increased the risk of customer and/or counter party delinquency or default and the company has experienced write-downs of its financial instruments and other losses related to volatile and illiquid market conditions,” said a note to the accounts.

Mr Brady said the Irish operation, which employs about 2,000 staff, “hasn’t been affected” by the arrival of the US government as a significant shareholder in its parent. He added, however, that the unit was engaged in efforts to cut costs, including wage costs.

The total assets on Citibank Europe’s balance sheet at the end of 2008 rose 89 per cent to $12.9 billion year on year, largely due to the inclusion of $5.1 billion in assets acquired from Citi’s Czech branch. Inter-group exposures represent $7.9 billion of total assets.

The Dublin operation assumed responsibility for this business through the acquisition, in an all-share deal, of a sister company in the Czech republic. The €600 million “fair value” of the Czech unit included a goodwill component valued at $282 million.

Citi characterised this development as an effort to consolidate the capital strength of its European operations in the most efficient way possible.

The Dublin unit’s adoption of headquarter responsibility for branches in Romania, Hungary and Slovakia strengthened its balance sheet by a total of $4 billion, Mr Brady said. “The corporate taxation regime helps, but all those countries had low tax anyway.”

The combined consideration for these branches in share-based transactions was €533 million.

Asked if further moves were under way to develop headquarter operations for other branches in eastern Europe, he said there were no plans at present.