What is the connection between Egg and an episode of the soap opera Dallas? The answer is Citigroup, which has just purchased the internet bank for £575m.
Citigroup is the world?s largest financial services organisation, populated by larger-than-life executives who have been making a bit of a splash recently – improbable though that might seem in the buttoned-down purlieu of banking. Embattled chief executive Chuck Prince has very publicly fired his high-profile head of wealth management, Todd Thomson, and replaced him with Sallie Krawcheck, the world?s most glamorous CFO. Exactly why Todd has fallen from grace remains a mystery, but a couple of hints may be found in his exuberant lifestyle (his office was nicknamed the Todd Mahal), and an ?inappropriate? affair with ‘Money Honey’ Maria Bartiromo (shades of Wal-Mart?).
Matching these Masters of the Universe is a brand presence which BrandFinance reckons to be number three globally, behind Microsoft and Coca-Cola, but ahead of Wal-Mart and IBM. And yet, over here – like the Anheuser-Busch of a few years back - it’s the biggest global brand you’ve barely heard of.
For some time, Citigroup has maintained a discreet retail banking presence in the UK, centred in the City. There?s the odd branch and a concierge-level credit card presence, squarely aimed at the mass-affluent (£600,000 disposable assets and above), but nothing to suggest that the Citibank subsidiary has been mulling a major offensive against UK high street banks.
We know why the Pru’s Mark Tucker was so keen to offload Egg. Mounting losses, £145m last year, were becoming too great to bear, or explain to shareholders. True, the £575m price tag looks humiliatingly small, compared with the over £1bn RBS was apparently prepared to pay in 2004, or indeed Tucker’s own £950m valuation. But then, it is a bit of fire-sale – a pragmatic decision by Tucker to appease mutinous shareholders and buy himself time to shore up the Pru’s defences against a potential break-up bid.
So is the Pru’s corporate predicament a golden opportunity for Citi to exploit a misunderstood and mishandled brand? Not necessarily.
Citi?s window on the UK?
For Citi, Egg’s accumulating losses are small change. On the surface, in fact, it looks a smart acquisition at a keen price. One thing Egg has always been very good at – and Citi bad at in the UK – is building and sustaining a retail banking brand. If Citi is indeed planning to build its presence, acquiring a well-known internet brand at a knock-down price sounds a lot cheaper than massive investment in a UK branch network and a sustained corporate advertising campaign. Citi also has the infrastructure and resources to make a success of Egg abroad, something the Pru signally failed to do in France.
But can it really be that easy? George Awad, head of Citigroup consumer business EMEA, reckons that a lot of Egg?s losses can be stemmed by moving Egg’s products onto a single platform, and by applying Citi’s superior experience in dealing with consumers with patchy credit records to head off card defaults.
Fair enough, but what about further down the line? Is the Egg business model actually sustainable? Many, including Marketing Week, have been impressed by the way Egg has brought the techniques of packaged goods marketing to the stuffy world of banking. They have been less impressed by the business model. What seemed so fresh nine years ago now appears comparatively pedestrian, given that the high street banks have caught up with the Egg offer and internet banking has become the norm rather than the exception.
But aside from declining novelty, there is also the unresolved issue of Egg’s cross-selling strategy. In the early days, Egg was understandably interested in building up ‘traffic’ as quickly as possible. It did so by offering sharp promotional rates on savings accounts and, less advisedly, credit cards. This certainly attracted a younger, more internet savvy (and often, less creditworthy) clientele, but hardly laid the basis of a sound future business. Whether, as Citi is hoping, such customers will be interested in a longer-term relationship involving the cross-selling of insurance products and, say, mortgages remains to be seen. High street banks do not, by and large, offer the best and sharpest investment products across the board. Egg will have to work very hard to dispel that reality. Assuming, of course, that Citi has the will to do so in the first place.