Citigroup to scale back branches and build online banking presence

Citigroup (C), trying to recreate its image, intends to reduce the number of brick and mortar branches and intensify its online-banking presence. The new plan will be presented to Citi's board members in October, according to a report in the Wall Street Journal. Citi will keep branches concentrated in six cities: New York, Washington, Miami, Chicago, San Francisco and Los Angeles. Branches in Texas will likely be sold off and those in Boston and Philadelphia may or may not remain open.

Citi was never branch intensive. Right now, Citi has about 1,000 branches in the U.S. compared to 5,000 apiece for Bank of America (BAC), J.P. Morgan Chase (JPM) and Wells Fargo (WFC). Citi fell far behind the pack when JP Morgan bought Washington Mutual and Wells Fargo bought Wachovia. About 75 percent of Citi's branches are actually outside the U.S. and Citi plans to focus more on corporate clients and its non-U.S. operations. In the United States, it plans to cater primarily to affluent customers with jumbo mortgages and credit cards.
You may think the strategy sounds strange, but in reality it's on target for where to find new customers. Based on a survey by the American Bankers Association, 25 percent of the population prefers to do its banking online and that number is growing. In fact, the survey found that the Internet is the preferred banking mode for all customers under the age of 55 and the popularity of ATMs has fallen in all age groups.

Through 2012, the number of online banking users is projected to grow at a compound annual rate of 20 percent, according to a report from the Tower Group. The Tower Group defines online banking as anything done once a person logs onto a bank's website.

All brick and mortar banks are experiencing growth in their online services. Bank of America has 30 million online banking customers. Chase has 13.9 million online bank customers. Credit card companies are building depositors using their online presence as well. HSBC Direct boosted its savings account balances by 18 percent to $15.5 billion and Discover Bank saw a $2 billion increase to $10 billion in its online and telephone banking operations in the third quarter.

Clearly, the trend is toward online banking. The big question for Citigroup is whether or not it's getting into the party too late. The bank would need to aggressively build its online presence using its credit card customers. But Citi, like many other credit card companies, has spent the last year cutting credit lines and raising interest rates, losing customers in the process. Can it now rebuild a new large customer base with those left?

Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies and Trading for Dummies.
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