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Citibank

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Andresen
  8/15/2016 21:26 EST

Some weeks ago I wrote about the ATM machine in Santafe mall in Medellin disappearing. Someone commented about Citibank reducing their presence in Colombia. I;m not doubting that but found it strange that I was a 6 level advertisement for Citibank in Santafe mall yesterday.

Andresen
  8/15/2016 21:27 EST

"I saw" not "I was". mea culpa

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guestuser
  8/15/2016 21:36 EST

Feb 19, 2016 Bloomberg

'Citigroup Inc., the bank that gets more revenue from outside its home market than any of its U.S. competitors, plans to sell retail-banking and credit-card operations in Brazil, Argentina and Colombia.
The businesses will be moved into the Citi Holdings unit, which houses the company’s unwanted assets, effective this quarter, the New York-based company said Friday in a statement.'

Daily Mail (UK) same date

BOGOTA, Colombia (AP) — Citibank is planning to sell the consumer banking operations it has operated for a century in Argentina, Brazil and Colombia as South America's three biggest economies suffer a major downturn.
The New York-based bank said Friday in a statement that its decision was prompted by a desire to allocate resources where it can generate the best returns. The decision to eliminate its services affects depositors in more than 50 cities in the three countries.


My guess is that it's not going to be an easy sale. Banks outside LATAM have left the region and show no signs of returning. Banks in the region investing in Colombia haven't had a lot of success here. So that leaves a rather small number of suitors - the local banks. And they have the opportunity to grow themselves rather than buy. Much of the benefit of the Citibank name (and the program they sell with linked high net worth US accounts linked to Colombia) goes away if it gets sold to a local bank.

Andresen
  8/15/2016 21:42 EST

PL, thanks for that. I guess they're just trying to grow the brand until they can make a sale.

guestuser
  8/15/2016 22:03 EST

Not so sure it's growth I think it'll be trying to keep it at least flat. A shrinking business isn't going to help the sale. They've also had a reasonable amount of worker issues since the sale was announced (the branch on Poblado had sheets with unhappy workers slogans on hung outside) so they'll be trying to offset any negative image there as well.

Epicatt2
  8/16/2016 19:36 EST

PL posted:
"Citibank is planning to sell the consumer banking operations it has operated for a century in Argentina, Brazil and Colombia as South America's three biggest economies suffer a major downturn."
== ==

In particular keeping the remark "as South America's three biggest economies suffer a major downturn." in mind, what might that mean for the expat who has retired in Colombia. Or the expat-to-be who's considering retiring to Colombia?

Will that strengthen the USD against the COP?

Any other considerations we should beconsidering or worrying about? ¿Algo más?

Just curious how that could affect expat retirees . . .

Comments invited.

Regards,

Paul M.
==
PS - Que no demos socorro a los duendes.
==

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guestuser
  8/16/2016 21:53 EST

I worked in the region as a risk manager for a major US bank. I'd suggest we're in a period of medium risk. I was in Argentina during the big crisis there - and I don't think there's anything on the horizon that looks like that.

However, on Citi specifically they really are just about the last guys in town. Everyone else has moved on. It's not so much generating enough dollar profit it's the risk weighting (and therefore capital allocations) that go with activity down here. Scotia still maintain a decent number of units in the region, but apart from that Citi are really the last guys out of the door.

If you're an expat what are the risks?

Well, we've seen a good depreciation of COP against the $, although in recent months the COP is the best performing currency in LATAM against the $. Colombia's two big exports, oil and coal are the two problems here. Coal is gradually being phased out given environmental concerns. That impacts Colombian exports. Oil is the same - although rather more demand driven. If you're looking for a real concern beyond the price of oil (and the Colombian government had planned on oil around $100 a barrel) the nations current reserves last around 7 or 8 years. And at current prices looking for new oil isn't that economic. Colombian oil is much more expensive to extract than say Venezuela.

Inflation is also running at a good clip here, around 8% per annum, Part of that is the result of the exchange rate movement. Imported goods have fueled inflation. As we've seen some strengthening of the Peso that should moderate, but of course there will be a 'catch up' as workers seek increases to try to catch back up with inflation. Today for example there's talk that the truckers strike may be back on,

Then there are interest rates. Rates down here are very high. For example investing in local bonds down here (for decent size investments - say $50-$100k) will give you returns of around 8-9%. Mortgages will cost people perhaps twice that - and yet there's lot of new expensive apartments going up in the cities around the country.

So, what does that mean for an expat? Well the inflation rate and the level of interest rates should tell you that there's a fair amount of risk. However, there are signs that the Central Bank hasn't managed things that badly. Compare the change in the value of the peso against the dollar against inflation and the inflation numbers are surprisingly low.

On the Peso what should we expect? I've spoken to a couple of traders at the bigger banks. They have a level of around 3,100 at the year end. Personally I rather doubt this. It's suggest very little change from 2015 year end. For me it's like a forecast of throwing a dart and then asking someone where the next dart will fall and getting the forecast that it will be next to the dart on the board. What expats have to be careful of is some rebound in the value of the dollar. At the current levels just below 2,900 we've come a long way from the 3.400 highs that we saw. Oil prices are still low - what would the peso be at oil around $60 a barrel? That might suggest perhaps 2,700 pesos to the dollar which might begin to have an impact on those expats who fund their daily expenses with ATM withdrawals.

The oil price has obviously left a huge hole in the country's finances. As I've mentioned in other threads we should expect tax increase to try to remedy that. If that hole isn't filled the issue for Colombia is maintaining it's hard won investment grade status. If that goes, we should expect to see impacts on both increased interest rates locally and a fall in the peso. Again local financial experts I talk to see that as a low risk; I'm not sure that I would agree.

Lastly what risks do we see in the economy? I'm currently selling an apartment as I think real estate prices aren't going to exceed the rate of inflation (in other words I can make more money putting my money into a local bond). The amount of disagreement I get from financial advisors on this is consistent. They'll tell me that Real Estate has always been a good investment. I seem to remember being told exactly the same before the crash in the US. The exposure to the local bank to Real Estate development is not insignificant. Obviously construction drives a lot of economic benefits, as does the infrastructure work like new roads, but it remains exposure. Current local interest rates (even given the tax advantages of property investment) don't support growing RE prices.

For anyone investing in property in Colombia for me it's more of an exchange rate game than a property appreciation scenario. Anyone who bought into the marker at 3,400 USD/COP looks golden. Others who have bought in the last couple of years may have less pleasing results.

Economically despite the headwinds the Colombian economy is growing at a decent rate, and far better than many of it's neighbors. However there's a Presidential election in the US coming up and one of the contenders has suggested that they will look to renegotiate a lot of the trade deals. My guess is that the Colombian one will not be a priority. The existing deal has done anything but help Colombia, sucking in huge amounts of imports from the US while return the exports have been disappointing.

Bottom line. as always in LATAM it's likely to be either feast or famine. As an expat the best approach is probably not to consider that things remain the same.

In LATAM the concept is never to be completely on one side of the market. Don't rely on only getting your pesos from an ATM. When there's a decent market opportunity move some Pesos in. Balance your risk.

testolas
  8/17/2016 12:40 EST

Thank you for you input on Citibank this very good reading and for me gives me a better understanding of the future of Colombia.

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