While the word on Wall Street is that congressional overseers of TARP funds are less than happy about Citigroup's aggressive pursuit of Asian emerging markets, that's not stopping the bank that never sleeps from upping its presence in the East.
Today, Citi announced that it has gained approval to act as a market maker in China's interbank bond market. Citi is only the second American bank to have such regulatory approval; the first is the recently de-TARPed JP Morgan Chase.
The regulatory approval is a real coup for Citi, since there probably couldn't be a better time to enter China's corporate bond market. The Chinese government announced earlier that it is looking to unilaterally raise corporate bond yields in a bid to attract more investors to the market. Business Insider's Vincent Fernando points out that one way to do that is to wean companies off bank loans, which constitute a significant component of emerging market corporate funding.
Actually, that's exactly what the government in China is doing right now. New lending dropped 77 percent in July. And China Construction Bank, the country's second largest lender by market value, has already vowed to decrease lending by 70 percent in the third and fourth quarter (despite circumnavigating the deleveraging policy through its AIG Finance acquisition). All this deleveraging is going to mean a need for another kind of leveraging if China wants to keep growing at it's lightning-speed rate. The natural alternative is indeed, the corporate bond market.
In China, the unspoken rule is that "what the government wants, the government gets." And those helping the government get what it wants often get very, very rich in the process. In this instance, that's exactly what Citigroup is doing: leveraging its brand name to make a market in corporate bonds.
While clearly the largest, the achievement is just one of a number of feathers in Citi's cap in the Asian region this year. The following is a list of five further movements Citi has made in Asia since March, all of which flew under the news radar:
- July 28: Citi Securities and Fund Services appointed custodian to Central Bank of Bangladesh
- July 22: Citi Treasury and Solutions appointed by Bursa Malaysia (Malaysia's primary exchange) as settlement bank for multi-currency securities
- June 19: Citi awarded largest purchasing card supplier agreement for Hong Kong government
- March 18: Citi China opens lending firm Hubei Xianning Chibi Citi in Hubei, China
- March 12: Citi Securities and Fund Services appointed custodian to Central Bank of Cambodia