68 Finance & economics The Economist February 19th 2022
or offering them more cheaply.
Then came the global financial crisis in- After incurring huge losses on over
$300bn of risky assets, Citi required a bail
out—revealing that, in a pinch, it was an
American, not global, institution. This was
underscored by stringent new domestic
regulations complicating, when not block
ing, international transactions.
That began a long period of contraction.
Early to go was the German retail opera
tion, for $7.7bn, then others in Turkey, Bra
zil, Egypt and over a dozen other countries.
It was as if the United Nations of banking
was being unwound. The Asian and Mexi
can operations remained, each in different
ways offering much potential. But Ms Fra
ser, who joined the bank in 2004 and was
less tied to the old strategy, concluded that
the bank lacked the scale needed to com
pete in many of its markets.
A striking featureofthefinalreckoning
has been how littletheAsianoperations
really mattered toCiti’sresults.Theirpres
ence vastly exceededtheirfinancialrele
vance: the Asianbusinessesthatarebeing
sold accounted foronly1.6%ofgroupearn
ings in 2021. Thishelpsexplainthepaucity
of bidders. Noneofthebusinesseshave
been bought by Standard Chartered or
hsbc, and theirownfarreachingopera
tions are now questioned.YearsagoJPMor
gan Chase’s boss,JamieDimon,formerlyof
Citi, consideredreplicatingitsglobalnet
work, only to concludethatbuildinga re
tail business marketbymarketwasn’tvia
ble. It is also strikingthatChinesebanks,
the new Goliaths,havemadebarelyanyef
fort to build foreignretailoperations.
Buyers of Citi’sAsianassets,totheex
tent they have emerged,arefullyorsome
what local. True,Singapore’sdbsanduob
have been willingtoacquireabroad,but
Taiwan and Vietnamarehardlyfarflung,
especially for bankswhosehomemarketis
small and servesasa hubforAsianfinance.
Local and regionalconsolidation would
seem to be morereflectiveofthetimes.
Systemic rewards
As Ms Fraser pushesonwiththedisman
tlement, there willdoubtlessbegnashing
of teeth within aninstitutionthatlooksto
many outsiderslikea shadowofitsformer
self. It may be someconsolationtocurrent
and former Citibankersthatthetechno
logical components ofMrReed’s vision
have been takenupboththroughinterlin
kages in the globalfinancialsystem—atms
and credit cardshavelongbeenubiqui
tous—and throughfintechoperatorssuch
as Grab in Singapore,AntGroupinChina
and Wise in Britain,thatenableelectronic
payments and remittances.Citi’sexperi
ence, in short, suggeststhatthebenefitsof
globalised financecanbemoreeasilyen
joyed by the systemasa wholethanbyany
single institution.nPredictionmarketsPunting profits
T
he linebetween investing and gam
bling has always been thin. This is es
pecially true for prediction markets, where
punters bet on events ranging from the ba
nal (“will average gas prices be higher this
week than last week?”) to the lighthearted
(“who will win best actress at the Oscars?”).
Prediction markets have something of a
cult following among finance types who
rave about the value of putting a price on
any event, anywhere in the world. Such
prices capture insights into the likelihood
of something happening by forcing betters
to put money where their mouths are. But
critics argue such markets will fail to grow
beyond a niche group, reducing the value
of their predictions in the process.
The debate has been reignited by a new
“event contract” exchange–a market where
traders can buy and sell contracts tied to
event outcomes—run by Kalshi, a New
Yorkbased startup. The firm has made
headlines because it earned approval to
run America’s first such exchange without
regulatory limits on the scale of activity—a
feat that has long eluded its predecessors.
PredictIt, one of the most popular Ameri
can prediction markets, operates as a non
profit research project limited to 5,000 bet
ters for each event. The size of bets is
capped too, at $850 per person, per ques
tion. Kalshi overcame such hurdles by con
sulting American regulators for two years
to earn their trust, says its boss, Tarek Man
sour. He believes this could make eventcontracts a real asset class, like options.
That may be why the startup has attract
ed so much interest. It counts big names
from Sequoia Capital to Charles Schwab as
backers. A former member of the Com
modity Futures Trading Commission, Kal
shi’s regulator, has joined the firm’s board.
Kalshi’s timing is also opportunistic.
Retail traders have ventured far beyond
bluechip stocks to assets such as options
and cryptocurrencies. The firm sees event
contracts as a natural extension of that cu
riosity. And Kalshi specifically looks for
events ripped from headlines, says Luana
Lopes Lara, one of its cofounders. For in
stance, it launched markets on usSupreme
Court cases in December 2021.
In the longer run it hopes to attract
more sophisticated investors. Why might
they join a seemingly gamelike platform?
For one, they could make money off less
informed amateurs. They may also use it to
hedge against risks. An investor with stock
in the American construction industry, for
instance, might have bet against President
Joe Biden’s infrastructure bill to cushion
its losses if the bill had failed.
But there are several barriers to broader
adoption. One is that there is a fundamen
tal difference between betting on events
and betting on stocks. Public companies
generally engage in profitable projects, so
shares tend to have positive returns; over a
long enough period, investors would make
money even if they picked stocks at ranAn exchange makes progress with regulators as event-betting markets look to
join the financial mainstream