Citigroup (C.N) could move European retail banking operation to Dublin
Citigroup (C.N) is planning to shift the head office of its European retail banking operation to Dublin from London to benefit from lower costs and capital requirements.
This week the bank wrote to clients to say the UK-based business, Citibank International Limited, which operates a small number of branches across some 20 European countries, would be taken over by Dublin-based Citibank Europe Plc.
"From a strategic perspective for Citi, moving to a single pan-European bank is expected to reduce operational and regulatory complexity, capital requirements and cost," the company told clients.
Analysts said UK rules that require banks to hold a higher level of cash in reserve than other European countries do was likely to be a factor behind the move but that they did not expect to see a stream of other banks moving their headquarters from the UK.
A spokeswoman for the bank said the change in the retail bank's legal domicile and principal regulatory base would not involve job cuts and that the leadership of the European retail operation would continue to be based in London.
"The primary reason (for the move) is simplification, mirroring Citi’s strategy of creating a simpler, safer, stronger institution," she said.
Citigroup has been scaling back its retail operations in recent years and remains a small player in Europe.
Citibank International Ltd employed 4,600 people at the end of last year, filings show. Citibank Europe Plc employed 4,300 and currently focuses on providing transaction services to financial services and corporate clients.
The spokeswoman denied that the decision to rebase in Dublin was influenced by the possibility of the UK leaving the European Union following the referendum on EU membership which is due to be held in the next two years.
Also, although Ireland has become a magnet for international financial institutions thanks to its low tax rate, the spokeswoman said the restructuring was not tax driven.
Since the financial crisis regulators have increased the amount of cash and government bonds banks must keep in reserve in case of financial storms.
Higher capital requirements mean less money to lend out or invest and consequently lower returns for a bank.
European Union countries apply the same international rules on capital requirements. However, on top of the basic reserve requirements, regulators require some banks to hold additional capital as a buffer. The amount depends on the regulator's perception of the bank's systemic or business risks.
The UK's banking industry is much larger in terms of its assets as a percentage of national GDP than that of other countries in Europe, which means bank failures could cause bigger economic ripples than elsewhere.
This has led the UK regulator to require banks to set aside more money than other European countries demand, analysts said.
"The UK regulator has typically been at the conservative end in terms of capital requirements," said Gary Greenwood, banks analyst at Shore Capital.
In future, Citigroup will have to set aside the same percentage of its UK assets as it currently does. However, it may no longer be required to set aside a similar percentage of total European assets if the Irish regulator takes a more lenient approach to its UK counterpart.
The Citigroup spokeswoman declined to say how much any reduction in capital requirements might save the bank.