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Citi Private Bank has re-honed its client offering for
the ultra-wealthy as it works to make use of its vast geographic
spread. Global chief executive Jane Fraser tells Nicholas Moody
about Citi’s big strategic priorities, bringing cutting-edge
technology to clients and the danger of irrelevancy.
It has been a testing two and a half years since Jane Fraser
took over as head of Citi’s Global Private Bank in April 2009.
Six months before
she took charge, Citigroup had shaken up its wealth management arm
with the 51% sale of Smith Barney to Morgan Stanley.
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By GlobalDataAcross the industry, trading
volumes were weak in the wake of Lehman and wealth managers were
facing drastically tougher business conditions.
Into this challenging environment
stepped Fraser, the former global head of strategy and mergers
& acquisitions at Citi, with her key strategic priority centred
around Citigroup’s integration of the private bank into the
institutional clients group.
More than two years on, Fraser, who
spoke to PBI in the middle of a two-month visit to Asia,
said the bank had made good progress with its two key strategic
priorities: bringing the US private bank back into the global
private bank and re-honing its UHNW segment.
Many private banks encourage a
close relationship between their institutional and private banks,
but moving the entire private bank within the division was partly a
result of the clients Citi serves, Fraser says.
“We put the private bank into the
institutional clients group because most of our clients’ wealth
comes from the businesses they own and run,” says Fraser. “They
want institutional quality of people, products, services and
ideas.”
Erik Oja, a US bank specialist with
Standard and Poor’s equity research, says Citi has done a good job
turning around revenue growth and backed the idea of moving the
division into the institutional client group (ICG).
Annual revenue has slowly dropped
since 2008 from $2.3bn to $2bn in 2010, although figures for the
first six months of 2011 show a 6% year-on-year increase to
$1.07bn.
Citi’s refocusing has seen it
continue to attract clients, although it will not disclose how much
its client numbers have increased.
It now only accepts clients with
investible assets of more than $25m, in Asia this is $50m and
above.
Assets under management (AuM)
increased by about 30% in the past couple of years, with total AUM
estimated at about $150bn.
Where is this growth coming
from?
Fraser says referrals continue to
flow from its Citigold and consumer businesses as well as the
corporate and commercial bank.
Connecting Citi’s
footprint
Expanding a
bank’s business in new markets, particularly in emerging economies,
may be all the rage, but scale is not what interests Fraser.
Citi’s focus is on getting the most
of its resources, harnessing Citigroup’s extensive network in 160
countries.
“It is not about building a
footprint, but connecting the different parts of our footprint,”
she says.
Fraser acknowledges that China and
India are huge areas of wealth creation in Asia but she is eager to
emphasise that this growth could be in Indonesia, just as much as
in China.
“Most clients at the UHNW level are
global individuals. The world is becoming multi-polar. Our business
is about servicing clients seamlessly wherever they are and
providing the best investment opportunities and risk management
worldwide,” she says.
Home, sweet
home
Fraser has another key message on
bank strategy; don’t forget the US.
“It is fashionable to focus on the
emerging markets, but don’t rule out the US. The entrepreneurs
there are alive and kicking and damned creative,” she says.
The strength of emerging market
economies and the short-term lack of economic growth in developed
markets is forcing Citi to ask a key question of its clients, what
is going to be your base currency in three or four years’ time?
“Most clients’ base currency is the
dollar,” Fraser says. “We ask our clients to think about the base
currency they will need to be in three to four years from now.
Though it is difficult, when you made all your money in the US, to
think renminbi.”
From its own perspective, Citi
thinks the Singapore, Canadian and Australian dollars, Norwegian
kronen and Brazil reals all have strong potential.
Moderated quality over
rapid growth
To service this increasing client
pool, Citi gave its staffing ranks a big boost in 2010 – adding
close to 250 relationship managers. Its relationship manager/client
ratio stands at 30:1, although in Asia it is 22:1.
The bulk of these were bankers and
product specialists, but Fraser says not to expect these high
levels to continue.
“We are not looking to bring on 250
new bankers every year – if you grow too fast the place can’t
absorb it and the culture is stretched,” she says.
Recruitment levels could continue
growing at 10-15% annually, although Fraser says this would be at
the higher end of the scale.
As always, the brake on expansion
is quality of staff.
“Getting the right supply of staff
is one of the areas we have been focused on. In the past there
hasn’t been a high calibre of talent in the industry,” says
Fraser.
“We has grown our own and also
brought in high quality talent from the ICG.
“If you are trying to set up shop
in Asia, you need a great head of risk to help you understand how
to do business. Clients don’t want a reputational issue,” says
Fraser.
Reducing risk
In April, Citigroup was temporarily
suspended from taking on new Citigold wealth management clients in
Indonesia, following an investigation by Indonesia’s central
bank.
The Bank of Indonesia probe centred
on an estimated $2m of illegal transactions allegedly carried out
by a local customer relationship manager.
The Indonesian investigation
follows a similar probe by Indian regulators in January this year
after an alleged scam totalling as much as $86m at the Gurgaon
branch of Citibank.
Citi’s Private Bank had no
involvement with these two high-profile scandals, but these
incidents highlight the risk of reputational damage and the
importance of having effective risk management and control
functions.
“In the private bank, we have a
deep presence in many different places around the world. We
recognise our clients care about the control environment. We are
focused on ensuring we have strong risk management practices and
employees with a tremendous amount of experience and judgment,” she
says.
Cultivating
longevity
Long-term culture is important to
Fraser.
“If you are a banker, or in
operations, you are responsible for making sure there are not
operational issues, client activity, questions around character
that will harm the franchise,” she says.
“If the front line and business
heads do not feel it is also part of their day job, that’s when you
get the biggest issue.”
To underline this long-term
approach, Citi has now removed all Citi products from its hedge
fund platform, Hedge Forum, and taken all its bankers off
commission or formula.
This focus on the long-term service
to clients is shaping what Citi calls “the private bank of
tomorrow”.
This centres on improving its
technology offering, both internally and around the client
experience, as it looks forward to what its future clients will
want.
One step forward towards this
future bank is updating the physical experience of coming into a
branch.
“When you think of the image of a
private bank, you think of a wood panelled library,” Fraser
says.
“For our London office, we hired
the designers behind the Apple store to come in and design what the
facility looks like for a modern private bank.”
Top-class
technology
“Clients want an experience that is
trusted and institutional quality that works seamlessly, but it is
also in an iPad world, where things look nice,” says Fraser.
“Clients want technology that lets
them know what they have got, what are some investment ideas, and
pull it together in a format that’s accurate and seamless.”
This full spectrum service offering
is still in development, although Citi was one of the first private
banks to offer an Apple application when it launched in November
last year.
Many of the technology innovations
come courtesy of its institutional client and consumer divisions,
and a unique partnership with its Palo Alto-based Innovations
Lab.
“We have got a tremendous wealth of
capabilities that have been provided to our institutional clients
already that we can then pull from their systems,” Fraser says.
“We will put a different front-end
on so it is easier for our clients to use, but we have the engine
and data repositories already sitting there to distribute our
content by iPad.”
The consumer bank also has a new
system that is being implemented globally and will be used by the
private bank. Although providing all these services are two or
three years from being provided globally, they give a view of the
future.
Young bright
things
Understanding what the next
generation of clients wants is an important part of Citi’s future
plans. Fraser says the bank gets a lot of client participation
through its next generation programmes.
“Our client base is very tech savvy
and includes a lot of the next generation of wealth,” she says. “We
have worked with our Silicon Valley Innovation Centre on a lot of
this.”
These innovations are driven by two
major factors: globally $5trn of wealth is expected to be
transferred to the next generation by 2020; and 21st century UHNW
clients rely on technology.
“The next generation is different
from dad and they have a different approach – they don’t always
want dad’s adviser – they want their own experience to be relevant
to them,” says Fraser.
“Irrelevancy is a far bigger threat
than any competitive threat,” she adds.
“Look how technology changed the FX
business. If we did not take innovation into account, we would not
be doing our job.”
Turnarounds take time. However, with a eye on creating the right
culture, paired with 21st century technology, Fraser’s strategy is
bringing Citi back.
