Enjoying Citi life

More than two decades after starting his trade-finance career in Latin America, Valentino Gallo is managing structured trade finance for one of the world’s largest banks. He discusses with Courtney Fingar his early years at Fiat, his move to Citibank and his outlook for key emerging markets.

Leaving his home in Italy, fresh out of college, and moving to Latin America for a few years was a defining experience for Valentino Gallo, both personally and professionally. “I witnessed the Latin American financial crises of the early 1980s. I learned from the inside about exchange controls and the effects that massive devaluations may have on corporate balance sheets, but I also understood the idiosyncrasies of the Latin American people and enjoyed the local traditions,” he says.

Gallo started his career in Latin America more than 20 years ago, working in the finance department of Fiat’s truck subsidiary in Venezuela. After three years, he went back to Italy and spent five more years with Fiat, in the export-finance department of its holding company in Turin, working as an area manager for Africa and the Middle East. At that time, the Fiat group was diversifying in several non-automotive sectors, from telecoms and power-equipment manufacturing to construction. “All these businesses had a strategic focus on emerging markets and needed to back their bids with the most attractive financing packages for customers,” he says. “I started dealing with the export credit agencies (ECAs) and assisted the sales operations of the Fiat subsidiaries in their negotiations with foreign customers, ECAs and banks.”

In hindsight, he says: “My years at Fiat were a very good learning experience; many of the trade-finance bankers I admire most in the market have an industrial group background.”

During this time, he also developed a strong, and perhaps uncommon, admiration for ECAs, which are so often criticised by exporters and banks because of their time-consuming bureaucratic processes and lack of flexibility. “The truth is that the ECA business has changed a lot during the last ten years and today it is much more sophisticated than in the past. Credit and underwriting committees of the ECAs are requested to take decisions on very difficult credits. Ten years ago the ECAs did not know what project finance meant. Now, most of their business is in the area of project and structured finance. Their personnel has gained more knowledge and the performance of the portfolio of the leading ECAs has improved.”

He continues: “They have also become innovative, where most of the agencies are now offering guarantees denominated in the currency of the importing country, which helps exporters in those industries like telecoms and power where the cashflow of the importer/borrower is in local currency. The ECAs realised that by facilitating lending in local currency rather than in dollars, the borrower would not incur any devaluation risk, which has been the main reason for the defaults in these industries during the most recent crises in the emerging markets. This is obviously better for importers, but it also reduces the risk of defaults, which is good for ECAs.”

Gallo left Fiat and joined Citibank in Rome in 1989, handling marketing for the structured trade business in the Italian market. He found the double change from an industrial group to a bank and from an Italian organisation to an American organisation challenging initially. “I had to work harder to win business using what I knew about trade finance, while learning about banking. I received tremendous support from management and was able to set up a small team of trade-finance professionals,” he says. They decided to focus strategies in two niche markets: shipping finance and forfaiting. This plan worked well and it wasn’t long before business was booming. Italy became the most profitable European market for the trade-finance business at Citibank, and, within a few years, Gallo was given increased responsibilities for the structured-trade-finance business in Europe. In 1999, he was asked to move to New York and become the global manager of structured trade finance.

He looks set to remain there for quite some time. “I feel very fortunate to do the job I am doing and to be a part of Citigroup. I enjoy the international mix of my working environment and the constant focus on innovation and in doing things better. It is a privilege to be part of an exceptionally talented group of individuals from which I am learning a lot every day,” he says. “Citigroup is one of the most coveted employers in the world. Young professionals, when hired, are given the chance to learn a lot through institutional training, but, apart from that, there is a strong culture of innovation, teamwork and of being number one.”

But, as at any institution in the current economic climate, there are challenges. “The industry has gone through a restructuring phase, meaning lay-offs. It is not a secret that this has affected Citigroup,” Gallo says. “Restructuring a business and evaluating who eventually has to go is a difficult job.”

Of course, working in emerging markets presents a special set of challenges. “Trade finance has always been fundamentally important for emerging-market economies and the quality of assets is particularly good, most of them being short-term and self-liquidating in nature. For example, none of the bonds issued by Argentine exporters, which were secured by export receivables, have missed a payment to a creditor,” Gallo says. “However, trade finance is not exempt from the high volatility of emerging markets, and when the pressure deriving from negative expectations becomes really intense, trade finance may also suffer.” This was evident, he says, in the second half of last year in Brazil, when financial crises already affecting the country also had a negative influence on the risk tolerance of trade-finance bankers, who drastically cut pre- and post-export finance lines to Brazilian companies.

Geopolitical uncertainty will continue to negatively affect foreign direct investment in emerging markets; therefore, capital expenditure investments will continue to be weak, Gallo says. However, he sees some positive signs, referring in particular to Brazil and Russia. “The markets have eventually acknowledged that the new Brazilian government is committed to tight fiscal policies, working diligently on sound reform of the pension system, promoting exports and trying to attract new foreign investments. This has restored confidence in local companies, which have started investing again,” he explains. “The Russian investment environment has improved a lot, driven not only by high oil pricing but also by the commitment of the government and of the local business to embrace corporate reforms, from corporate governance to higher disclosure accounting standards. Russia and Brazil will be offering good business opportunities both on the import and export financing side.”

Cosmopolitanism and creativity

More than two decades into his career, Gallo says he still feels the enthusiasm of the early years. “Trade finance is a business that keeps evolving and reinventing itself day after day. I am still gratified by doing what I am doing: identifying new strategies for the structured trade business, circumventing roadblocks and pursuing the new opportunities that the markets give us each day,” he says. “The most interesting aspects of trade finance are the international environment and the opportunities for creativity in developing new financing solutions for the customers. I start a normal working day speaking with Europe or with someone from Asia in the early morning, then with Latin America during the day and again with Japan or Asia in the evening.”

Gallo tells a story to illustrate this point: “At our last global off-site meeting, we had a quiz game for the structured trade bankers in which we asked them to tell us which jobs they would have taken if they had not become a banker. Apart from one individual who had wanted to become a Formula 1 driver and another who would have liked to have been a waiter in a bar in Baja California, the rest of the team was split between jobs in the diplomatic world and architecture and design, meaning that the people working in this business want to deal with the rest of the world and have a creative vein.”

If the international aspect of trade finance is enjoyable, the creative part is essential, Gallo believes. “Trade finance is an evergreen business,” he explains. “If you do not put creativity into it, you cannot survive, and I like that challenge. I feel rewarded by the possibility of working with many very talented professionals, where we can exchange ideas and develop new solutions for our customers. Let’s be honest, these are tough times in the banking industry, in which you are constantly requested to do more with less. If you are not creative and persistent, you may not survive for very long.”

Courtney Fingar is editor of Trade & Forfaiting Review.