Private View Blog: Citi's reshuffled leadership hopes to pull ahead of rivals
As the vaccination rollout continues under newly-elected US president Joe Biden, American banks are once more seizing the initiative from Swiss rivals.
But this time round, a Scottish woman leader will be calling the shots. Jane Fraser headed Citi’s private bank from 2009 to 2013, before moving through a series of other key roles in the firm. Recently installed as overall Citigroup CEO, she promises a new focus on the “underserved middle” wealth management segment.
Ms Fraser carries the burden of Citi’s colourful history. She joined in 2004, shortly after the ‘one bank’ model, which has defined investment banking from the turn of the millennium, plotted in Midtown Manhattan by Sandy Weill, a previous Citigroup CEO..
Brooklyn-born Mr Weill distributed investment banking products through satellite private banking subsidiaries. While they held clients’ attention, his bankers would also sell business advice. Although Mr Weill has since renounced this New York model, it has been enthusiastically copied by the likes of UBS and Credit Suisse in Zurich.
Over the years, Citi bosses kept talking big. Mr Weill’s successor, Charles ‘Chuck’ Prince, claimed his bankers were “still dancing” even as the subprime mortgage crisis loomed in 2007. The music soon stopped, as the bank turned to the US government for a $45bn payment under the Troubled Assets Relief Programme.
Crisis prompts change
But Citi chins were not down for long. The charismatic Ms Fraser was installed as private banking supremo after a post-crisis restructure by incoming CEO Vikram Pandit.
This coincided with a disposal, to Morgan Stanley, of the Smith Barney subsidiary, which hard-sold internally manufactured products through a 17,000 strong brokerage network. Mr Pandit’s view was that the future of private banking was about more than selling products.
Central to this proposition was the recruitment of a new generation of investment staff, which was pushed through, even though Citi had officially sold its asset management interests to Legg Mason in 2005.
A task force of 1000 investment specialists, under the umbrella of Citi Investment Management, now advises bank clients, who have collectively invested more than $450bn. The unit is overseen by chief investment officer David Baillin, who predicts a much quicker exit from the lows of the pandemic than many competitors, recommending overweighting equities and Asian assets.
This portfolio management focus has appealed to institutions, family offices and the top end of the wealth spectrum. Citi competes for the attention of around 100 global families – many of them entrepreneurs from developing markets – with the likes of JP Morgan and UBS, each bank fielding an “elite squad” of relationship managers, combining private and investment banking expertise. This is an expensive business to be in, as the bankers need knowledge of private equity, currencies and M&A, as well as keeping a keen eye on geopolitical developments.
Until the appointment of Jim O’Donnell to run global wealth management from the start of 2021, the private bank was not so focused on serving the $15m to $35m high net worth space. Ms Fraser now promises “significant expansion”, in a market niche she believes is there for the taking. This is a segment powered by cutting-edge technology as well as personal service. Chief technology officer Phil Watson has masterminded Citi’s push into big data and artificial intelligence, working with both internal innovation networks and external partners, including London’s Imperial College.
Not all plain sailing
But there are questions to be asked about the bank’s future trajectory. Can Citi improve connectivity between its North American, European and Asian fiefdoms to seamlessly service global families? Yes, says James Holder, who supervises global bankers in London, Singapore, Hong Kong, New York and Miami.
Mr Holder now reports to Mr O’Donnell, rekindling a partnership from 25 years ago when they were both at James Capel. Since 2014, Citi’s 3000 private banking staff were presided over by Peter Charrington. Holding court in Citi’s head office on East 53rd Street, close to New York’s Central Park, from sunrise to sunset, the ebullient Englishman would be busy shaking hands with bankers, clients and journalists.
Following Mr Charrington’s recent departure from the business, the role of global private banking boss has yet to be filled, even with several capable lieutenants waiting in the wings.
Commentators say that despite Citi’s renewed sense of chutzpah, under its current leadership, it may struggle to compete with US rivals Merrill Lynch and Morgan Stanley, to whom it sold its brokerage network, as it is now lags both in adviser numbers.
Bank of America, JP Morgan and Wells Fargo are surging ahead digitally, and Goldman Sachs is also nipping at Citi’s heels with its Marcus offering at the lower end.
With this fierce domestic competition, Citi may look east for salvation. “Asia is Citi’s natural strength, given that the senior teams of most Asian banks are composed of former Citi executives,” says Malik Sarwar, a former Citi banker, now senior partner of the Global Leader Group in New York. “The US is the biggest prize, but there are giants roaming the land.”
This note of cautious optimism is shared by Seb Dovey, a long-standing consultant to wealth firms. “For many years, Citi was caught in a strategic no-mans’ land,” he says. “Clients will benefit from this more joined-up strategic view. It makes commercial sense for a business the size of Citi.”
As we emerge from the latest crisis, Citi staff are indeed dancing, but without the reckless abandon of previous decades. Having worked through several cycles, most know that they will need to find the chairs the next time the music stops.
