For Global Supply Chain Decision MakersAPRIL 2006 WWW.WORLDTRADEMAG.COM

For Global Supply Chain Decision MakersAPRIL 2006 WWW.WORLDTRADEMAG.COM

The New Trade Finance: Special Report

The Making of a Trade Banker: Claudia Slacik, Global Head of Trade Services and Finance, Citigroup

What High Energy Prices

Mean for the

Global Supply Chain

T H E M A K I N G O F A

romptly at 8:00 a.m., Claudia Slacik punched up the speaker phone on the 25th fl oor of Citigroup’s Corporate Invest-ment Banking headquarters in New York’s Tribeca neighborhood and, flanked by a dozen colleagues gathered around a long conference table, proceeded to patch in

the top people reporting to her from all over the world. For a bit more than a year, Slacik has been Global Head of Trade Services and Finance and on this brisk mid-winter morning she was about to present to her direc-tors and managing directors the outline of the strategic plan recently approved by the bank’s top management, the fi rst to fully bear her stamp.

“We’re projecting double-digit growth,” she began. And, it wasn’t just top line revenue she was talking about. Trade, so long a back-water division whose chief role was to provide low-margin services to keep Citi-group’s more profi table corporate fi nance clients loyal and happy, would henceforth be expected to generate transactions that produced shareholder value in their own right.

“We’ll improve customer satisfaction. We’ll improve operating leverage,” she continued, “by growing expenses slower than revenues. And, we’ll continue to promote excellence through common purpose.”

She sketched out tactics. Focusing on the countries with the greatest revenue opportunity will be one of

the main drivers. Sales efforts were to concentrate on industry sectors with high prospects for the tailored trade products being developed. Citigroup would aggressively market its back offi ce trade capability and IT platform to other fi nancial institutions to provide economies of scale.

And—here came the Big Idea, the cornerstone to the entire strategy, the reason she was optimistically pro-jecting quantum growth under her watch, Trade would direct concerted time and talent to a new, still largely uncharted arena that promised vast potential, indeed a wholesale transformation of the nature of trade fi nance. “We’re going to focus on the supply chain and supply chain management needs,” Slacik said in her charac-teristic ‘to the point’ manner of speech. Her modest tone, though, couldn’t belie the magnitude of the ven-ture: Citigroup was setting its sights on nothing less than ultimately fi nancing the cross-border end-to-end supply chain of its ‘anchor tenant’ clients, the inventory sides and the distribution sides of the top retailers and manufacturers around the world.

A tour d’horizon followed, with the heads from dif-ferent parts of the world briefi ng their colleagues on local trends and developments at this monthly Man-aging Directors’ and Directors’ meeting. “Exports are booming at double digits,” reported Asia. “Not just China but Korea, India, Singapore.” Keith Karako, the Trade Finance head, on the road in Asia (seven coun-

Claudia Slacik is leading re-energized Citigroup Trade with a bold vision of World-wide Supply Chain Finance. By Neil Shister

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Reprinted from World Trade Magazine, April 2006 • www.worldtrademag.com

tries in ten days), reported an opportunity for pre-shipment/post-shipment financing with a garment manufacturer who had just been asked by his major buyer to double his supply and simultaneously informed that by year’s end they were shifting from letter of credit payment to an open account. Latin America noted that the region in gen-eral was experiencing “virtuous cycles” as the demand for com-modities was fueling growth, then announced a couple of deals finalizing in Brazil and Ecuador. North America reported progress on an EDI platform being developed by the bank to empower a mega-manufacturer’s global supply chain financing (“It takes a lot of work but we can replicate the platform with follow-up clients”). The head for Europe-Middle East-Africa reported on solutions being developed around specific customer segments, with particular emphasis on financing receivables backed by insurance.

To underscore the fact that a new trade regime is in place at Citigroup, at that point Slacik’s recently appointed boss Ellen Alemany—in her first week as Chief Executive Officer, Global Transaction Services—entered the room to introduce herself. “This is an exciting time

for GTS Trade, knowing that no other institution can offer cli-ents what we can—including small and medium enterprises—because of our global footprint, transaction services and cor-porate banking solutions.” Her prior job at Citigroup was the Executive Vice President of the Commercial Business Group, the division focusing on the financial needs of small to medium-sized enterprises across a broad range

of industries in North America. Later that morning Slacik would speak with Michael

Corbat, Head, Global Relationship Bank, her organiza-tional partner whose role is critical in ‘spreading the word’ about trade solutions for the company’s largest clients. “Companies that are big demanders of goods based on the efficiencies they’re attempting to drive through the market are running lean and can’t afford the breaks in their supply chain and to do so, in my opinion, they need alternative sources of balance sheet and credit to their traditional domestic bank. That pres-ents an opportunity for us to step in in a big way.”

“Our customers are spending a lot of time on this, especially in the technology space,” continues Corbat. “Conversations you used to have three or four years ago

Claudia Slacik's management team. Front row, from left: Erik Wanberg, North America Trade Head; Amita Jhangiani, Managing Director, Asia

Pacific Regional Trade Head. Back row, from left: Keith Karako, Global Head Trade Finance; John Ahearn, Managing Director; Claudia Slacik,

Global Head of Trade Services and Finance; Steven Puig, Global Head Trade for Latin America; Felipe Rubio, Global Head Trade, Mexico; Dave

Conroy, Managing Director Global Head Trade Sales. Not pictured: Serra Akcaoglu, EMEA Trade Head.

“Conversations you used to have three or four years

ago about trade is now not around trade, it’s

about trade as a component in asset

liability/balance sheet management.”

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Reprinted from World Trade Magazine, April 2006 • www.worldtrademag.com

around trade is now not around trade, it’s about trade as a component in asset liability/balance sheet manage-ment. Before it was L/C or something not as key or center of the issue, today it comes right into most conversations about funding, strategy, what a company’s balance sheet looks like and how they should be thinking about their credit, thinking about leverage and thinking about their vendors and that relationship,” Corbat concluded.

Worldwide sales callsTwenty minutes into the weekly sales team meeting, Claudia Slacik enters to join another global round-up conference call. She will occasionally pose a question or add a footnote, but in the main her role for the next hour is largely to listen intently as potential deals in the sales pipeline are discussed.

She projects a high comfort level at these meetings, exercising command with the lightest of touches in the style of one who takes to banking naturally—which perhaps she did. “Dad was a finance guy.” The family moved around (“We were corporate gypsies, from ages ten to fifteen, I lived in Europe”), he worked for Mobil and I.T.T. and ultimately was the CFO for Levi Strauss (her three brothers are all in finance, while her sister is in retail). Her goal after college (Smith, government

and economics) was to live in New York (where she has resided for the past 25 years). She came to town need-ing a job and, it sounds almost random the way she recounts the tale, in 1979 found herself enrolled in a year-long training program at Bankers Trust.

The numbers she hears as she takes her seat reveal a pipeline currently well in excess of where things stood at this point in 2005. “It’s all good news this year rela-tive to last year,” says David Conroy, Global Head Trade Sales,” as she takes her seat.

Particularly encouraging in this respect are two very big deals with non-U.S. companies mentioned by code names only being discussed this morning, in which Citigroup would take over processing their back office trade operations. A key piece in Citigroup’s strategy is to become ‘the banker’s bank for trade,’ putting its balance sheet and risk mitigation capabilities and IT platform at the disposal of other banks.

Citigroup’s IT platform and capabilities figure prominently in Slacik’s vision, both as an enabler for supply chain deals and also as an asset itself which can be amortized through the sale of services to other financial institutions. Partially to that end, regional processing centers have been established in Tampa, Lewisham, Penang, and Mumbai, with another sched-

Slacik’s busy morning of meetings spans the

spectrum from monitoring global trends,

overseeing the sales pipeline and signing off

on specific transactions.

T H E N E W T R A D E F I N A N C E

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uled for China, allowing Citigroup’s IT capabilities to be scaled and made widely available both to their own clients and as an intermediary to other banks. “Our Centers of Excellence are becoming more important,” she explains. “The better they are, the better product you can provide to the client and the cheaper you can deliver it from our shareholder’s point of view.”

Long recognized as an industry leader in IT, Citi-group continues to invest heavily in capability. “We spend significant dollars,” says John Ahearn, Global Head of Trade Services and Business Unit Manager, “multiple millions of dollars a year on tech.” Few financial institutions can underwrite investment of such magnitude. For Citigroup, though, this is a cost of doing business. The kind of vendor-financing supply chain deals Slacik envisions can’t be under-taken at manageable risk without end-to-end visibil-ity of every transaction in the process from purchase order to final delivery. “We have enough internal flow to justify those investments,” emphasizes Ahearn. “The bank wants to be state-of-the-art; we’ve had a reputation for years of being a real technology bank. We now want to share that investment with other financial institutions in key markets where we don’t have a competitive issue.

Even for somebody at the head of the pack, tech-nology needs are evolving at an incredible speed and there’s lots of cost to amortize. “If you went back ten years, it was a paper based product,” explains Ahearn, who is also responsible for the Trade Services & Finan-cial Institution Services globally and the Business Unit Manager overseeing Trade’s IT development. “Seven years ago it was a desktop-based product; three years ago it was a pure Internet-based product. Today, a lot of the work is direct technology links between us and our clients.”

As an example of the current state of integrated data exchange, he cites the kind of trade business Citigroup currently does with a household name. “Five years ago, they had multiple banks running their front end system. Now they don’t even want a front end. Today, they’re sending us EDI or AS2 messages interlinked between our system and their SAP system. There are data transmissions back and forth: ‘here are transac-tions I want you to initiate, here are transactions we’ve completed.’ It’s a fully integrated platform.”

Other deals for project solutions were in the works. A $500 million steel sale from Korea to Vietnam needed financing. The buying functions of a major U.S. retailer were expanding in Hong Kong. A European food products company was going back into Russia. Eight hundred million dollars of syndication was being put together in behalf of the world’s biggest steel enter-prise. An international telecom company needed to structure cross-border risk mitigation with receivables in South America. A NAFTA-based tire company was sourcing a $400 million open account. A big Ameri-can retailer was looking to increase the velocity of its supply chain to assure that soft goods would hit the stores at the right moment in the fashion cycle by speeding up the procurement to pay cycle.

From the perspective of sales, Slacik sees herself with a big communications mission. Her job, as she describes it, is to align the disparate parts of the sales apparatus—weaned in the old ways of doing business, which was essentially the sale of commodity products on the basis of price—to the new supply chain solu-tions approach that, in her words, “is more and more about cross-border corporate finance.”

“I spend a lot of time talking to people in the trade organization. My job is making the people who work for me successful. That can mean getting capital for the group. And, it also means making sure the whole organization understands how trade is changing. Our job is to get our people all over the world on the same page, seeing what their clients’ global needs are and not just the immediate local need.”

To that end, she travels extensively (“Last July and August I had to go to Asia three times. I normally like to fly, but by the sixth leg, the return flight of that third trip, I was going out of my mind and had

resorted to watching old episodes of Raymond”). She is continually pushing her people to re-think the way they think about trade finance. “The market didn’t know how serious Citigroup was about trade in the past. Now it is clear we want to be the trusted advisor to our clients.”

Intellectual property and the financial supply chainThe difference between being ‘a trusted advisor’ and merely the purveyor of plain vanilla fungible products speaks volumes about the changes going on not only in trade finance but also trade. Which helps explain how Claudia Slacik, with no prior trade experience, was chosen by her superiors to head the division.

Following her ‘in-house M.B.A.’ year at Bankers Trust, she went on to work in such areas as equity investing, restructuring, and corporate lending. Then in 1992, she made a career move, left banking and joined the

Ellen Alemany,

Chief Executive

Officer, Global

Transaction

Services.

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world’s largest magazine printer at the time with rev-enues in excess of $1 billion, as Vice President, Strate-gic Planning. The fit wasn’t right. One doesn’t have to be around Slacik long to realize she’s high energy (her last vacation was spent rafting down the middle fork of the Salmon River) and at a printing company she found herself under-utilized.

Not quite sure what came next, she figured she could always cook for a living and enrolled in the professional chef program at the French Culinary Institute (from which she is a graduate). She completed the thousand hour program but she never got around to working in a restaurant, returning to banking when invited to join Citigroup.

The next decade of her career would be spent in asset-based lending, eventually rising to Group Head. In this role, she participated in financings and restructurings, mastering not only long term balance sheet utilization but also shorter term cash flow intricacies of DSOs (days sales outstanding) and DPOs (days payable outstanding) and the like.

When Global Head of Trade Services and Finance came open in 2004, she had conversations within the bank for upwards of a month and half as her bosses debated the right skill set for the job while they reflected about how trade finance was changing from a local business into a global business in the context of globalized supply chains. “The reason they wanted me here was they realized that trade was becoming an inter-nationally based asset lending business,” she now says. “Even though I had never done business outside of the U.S., and my experience was lending vis-à-vis U.S.-based bankruptcy laws and commercial codes, it seemed to be a good fit.”

Over an elegant lunch in a private executive dining room looking across the Hudson River to the Jersey Pali-sades, joined by John Ahearn, she discussed how Citi-group is consolidating a competitive advantage in what has typically been an arena of more-or-less comparable players. “The banking industry is incredibly fragmented,” she observed. “Dozens and dozens of banks are doing trade so there’s lot of room to grow market share because of that.” The key to Citigroup prospering in this environ-ment is, simply put, the value proposition of what Slacik repeatedly calls the bank’s unique “intellectual capital” vis-à-vis the competition.

“Take Retailer X, whom we bank, as an example,” says Ahearn explaining the nature of this intellectual capital. “They now take ownership of containers in the U.S., which means the vendors don’t get paid until then. Because of security, the U.S. has extended U.S. customs into a variety of foreign countries where they’re hold-ing up a lot of containers to do more extensive content checks. Somebody’s got to pay for this delay.

“There’s basically two ways to approach this transac-

tion. The traditional way is to go to the vendor and say, ‘We’ll work out a capital loan for you, 30-day terms, 50 basis points.’ Fifty banks can compete that way, includ-ing us. The other way is what we can do but others can’t. We have inventory financing capability, in-transit capa-bility, we know Retailer X. So we tell the vendor we can do that transaction, but we want 70 basis points instead of 50. Why can we get the extra 20 points? Because instead of 30 days, we can give you 75 days until you clear the entire transaction and get paid; and if you need to get paid early, we can discount the receivables for you on a non-recourse basis because we know Retailer X.”

Citigroup can offer this kind of deal because of the intellectual capital embedded in the transaction—the

visibility into the supply chain that enables more efficient risk management, and the relation-ship with all the stakeholders, which enables it to understand the impact of the transaction on the seller and the buyer’s desire to keep the cost of inventory off its books but still not put a reli-able vendor in working capital jeopardy.

“Competitors would look at this deal and say, ‘Retailer X is going to be paying the vendor in longer terms and the guy is

going to have a cash flow problem.’ We’re analyzing it looking at the underlying reasons for the terms, we understand what the impact on the vendor’s business will be, the risks on us as a lender. We can give a much more comprehensive package and better financing than local institution. And if we do it well, we’re going to be paid for the extra value we bring.”

“The traditional working capital loan, the bread-and-butter of trade finance, isn’t going to disappear from the scene. Even at Citigroup. But, Claudia Slacik’s mandate is to grow the business and it isn’t going to happen that way. “We’ll still do the ‘plain vanilla’ deals, but we’d rather do ‘an end-to-end’ where we do some-thing unique.”

And, she understands the depth of the developing market for this. “Companies are just beginning to look at their supply chain as an integrated whole, they now have chief supply chain officers and global procurement offi-cers, they’re going through the same transition we are.”

She is not unaware of the magnitude of her task; nor of the fact that, as a woman, she must overcome addi-tional challenges. Still, her confidence sounds rock-solid when asked what she thinks the scene will look like in five years.

“We’ll be the Number One recognized provider of high quality, high intellectual property trade product. There’s no doubt in my mind when I see the quality of the people coming here from other institutions because they want to play on the Citigroup platform and the quality of the product being developed. When we go to our client base and finance their suppliers and their distributors, when we get it right, we get it right really big.” wt

T H E N E W T R A D E F I N A N C E

“Companies are just beginning to look at

their supply chain as an integrated whole. They now have chief supply

chain officers and global procurement officers,

they’re going through the same transition we are.”