With troubles mounting for Wall Street giant Citigroup Inc. (C) in the form of a recent loss of over $150 million resulting from the Swiss central bank’s decision to end the cap on the franc, weak performance in its latest earnings results and $1 billion fine charged last year for currency benchmarks rigging, the leading global bank is planning to revive its financials by playing on its strength as the world’s largest currencies dealer and charging more fees.
As reported by Bloomberg, Citigroup is increasing fees for clearing and settling foreign exchange (FX) trades with certain clients expected to shell out up to 25%. The bank pointed at growing risk due to intensifying volatility and rising technology and client-coverage costs to justify the price hike.
Also, trades have become costlier with the increase in minimum margin requirement – the sum deposited to cover the credit risk. As a prime brokerage firm, Citigroup offers various services such as clearing, settlement and financing for clientele comprising hedge funds, high-frequency-trading firms and retail forex brokers.
With a decline in profitability on the back of escalating litigation expenses and unfavorable operating environment, banks have been trending toward higher fees to dodge top-line pressure.
Major banks like Barclays PLC (BCS), Deutsche Bank AG (DB) and JPMorgan Chase & Co. (JPM) have been hinting at customers to expect to disburse fees for trades executed at the WM/Reuters rates and Citigroup is expected to follow suit. WM/Reuters rates are used for determining foreign exchange prices and are published hourly for 160 currencies and half-hourly for the 21 most-traded ones.
Despite intensifying competition, Citigroup emerged a winner and captured a large market share in providing prime-brokerage services in the FX market. Capitalizing on the same will help the bank boost its revenue generation and ease the pressure on profitability.
Currently, Citigroup carries a Zacks Rank #3 (Hold).
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