Give Citicorp credit for optimism

Despite the hand-wringing over bad commercial real estate loansand higher interest rates, prominent money people see good timesahead.

John Reed, chairman of Citicorp, the largest U.S. bank companyat $231 billion in assets, told financial analysts recently thatCiti's profits would grow to $5 billion in this decade, three timesthe $1.6 billion operating profit the company earned in 1989.

Reed was looking beyond 1990 to the rest of the decade whenmillions of consumers in Europe and Japan, and perhaps Latin America,too, will get the American credit card habit. That's when Citicorp'sprofits will treble.

That means the standard of living is rising worldwide, whichshould give Americans a star to steer by when contemplating your owninvestments - whether interest on savings deposits or mortgages orthe outlook for stocks.

And Reed is not alone in being optimistic. John Paulus, chiefeconomist of the investment firm of Morgan Stanley, predicted thatinterest rates in the 1990s would remain at the relatively highlevels of the last decade - that is, about 4 percent over inflation,or 8.5 percent to 10 percent. But they would remain high for a verygood reason: worldwide consumer demand has seldom been as strong asit's likely to be this decade.

So the bad news in Paulus' forecast, high interest rates, ismore than offset by the good: rapid economic growth in Europe andAsia - plus a continuation of the U.S. economic expansion rightthrough 1991.

Peter Lynch agrees. The renowned investment manager of FidelityMagellan Fund, who last week announced his retirement, says the onlything investors should fear is double-digit inflation - which coulddevelop if, say, the Soviet Union disintegrated and oil becamescarce.

But short of catastrophe, Lynch says the economies of Europe andquite possibly Mexico and Brazil, too, will be growth markets forconsumer goods and services.

Citicorp is ready, having invested $1 billion a year in buildingup consumer banking operations.

The effort has paid off. Citicorp's consumer business has grownfrom a money loser in 1980 to the bank's largest profit maker - $842million of operating income last year. And before the new decade isover, according to Reed, Citi's consumer earnings will have grown toroughly $3.25 billion. That's a fourfold increase, thanks in largepart to growing business in Europe, where the 12 Common Marketnations will unite their economies in 1992. A new report fromSalomon Brothers investment firm calls Citi "The Only Clear-CutAmerican Bank Winner" in Europe.

Why? A big reason is credit cards. Citi has become a leadingissuer of Visa and MasterCards in the United States, where 23 percentof all retail sales - excluding automobiles - are done on plastic.

And now it sees opportunity in Europe where fewer people havecredit cards and almost no one uses the card as a revolving creditline - incurring interest charges but also increasing theirpurchasing power.

It's not that European consumers are different from Americans,necessarily, but that European banks have been fearful of handing outcredit lines to the masses. But Citi has no such fears, havinglearned from experience that credit card losses are consistently lessthan 5 percent of outstanding loan balances - better than bigcorporations.

What's the upshot? Not only is Citicorp's future bright, butits vision promises a bullish decade in which people around the worldget a little better standard of living.

And make no mistake, for all the jokes about plastic money andlectures about spendthrift shoppers, that's what increased consumercredit means: higher living standards and more individual choice.

Copyright 1990, Los Angeles Times. Distributed by Los AngelesTimes Syndicate.