Company Profiles

Citi's Private Bank Is No "Little Sister" As Expansion Continues

Tom Burroughes , Group Editor, 6 April 2011

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Citi Private Bank in North America has been through heavy changes in the past three tumultuous years, and one of its senior managers says that this part of the US banking titan is no “little sister” business to the rest of the group.

Citi Private Bank in North America has been through heavy changes in the past three tumultuous years, and one of its senior managers says that this part of the US banking titan is no “little sister” business to the rest of the group.

With an estimated $230 billion of client assets globally (Source: Scorpio Partnership), the private banking arm of the Wall Street firm has been expanding its footprint in its domestic market, as well as overseas. In May last year, Peter Charrington, the private bank’s chief executive in North America, said around 100 bankers would be hired over the next few years. A large number have already come on board.

So how do things look at Citi in the early spring of 2011 in a world still fretting about geo-political turmoil (Libya, Bahrain) and uncertainties about growth, inflation and government debt? Family Wealth Report recently interviewed David Bailin, managing director and global head of managed investments, at the firm’s offices in Midtown, New York City.

“The private bank is full square in what Citi does. It is no longer a little brother or little sister organisation,” Bailin said.

“To do that transition in three years, which is what [Citi CEO] Vikram Pandit has done, is tremendous. It is enormously exciting to be an employee here. I would want to be a client here,” said Bailin.

This man is well used to change. Bailin has been at Citi since October 2009, previously working as president of Alternative Investment Asset Management for Bank of America Global Wealth & Investment Management. And before that, the Amherst- and Harvard-educated Bailin co-founded Martello Investment Management, a hedge fund of funds. A strong background in alternative investments is a skill-set he brings to a bank whose customers expect to get fast access to best-in-class investments.

Recent performance of the private bank has been solid, if not spectacular. As reported in January, its revenues in 2010 were flat compared to 2009. The private bank reported revenues of $2.004 billion in 2010 compared to $2.068 billion in 2009. In the fourth quarter, revenues were $501 million, up $4 million, or 1 per cent, from the previous quarter. Higher client business volumes mainly drove the increase, the bank said. The results need to be considered against a backdrop of wafer-thin interest rates, volatile markets and some continued investor caution.

In the client’s corner

While any listed firm has to put figures on the board to keep stockholders content, Bailin said the bank is not interested in robotically chasing after greater asset sizes or numbers of client; more important, he said, is the quality of client and the overall profitability and success of the business. And as part of that is a commitment to genuine open architecture in service and product, even if that is not always the most lucrative business model in the short run.

“It [full open architecture] may not be the most profitable model but it is certainly the most client-centric model. We want to be seen as the partner of the client and we don’t need to go out to own as many assets as possible,” he said.

Citi, like some of its peers such as Credit Suisse, is not shy of defending the fully integrated banking model from those who might argue that it can create conflicts of interest. As far as such banks are concerned, the key issue is to be as transparent with clients as possible. At Citi, the private bank’s clients – requiring at least $25 million of investable assets – can and do get the benefit of institutional-level pricings in deals, as well as wide access to the expertise of the IB in areas such as IPOs, corporate finance, forex hedging and wealth structuring. It is a combination, Bailin says, that can meet the demanding requirements of its wealthy clients.

A journey

Three years ago, Citi decided to restructure its operations to serve clients with a singular focus in three core businesses – transaction services, securities and banking (which includes private banking), and regional consumer banking.

To give a flavor of how international this private bank has become, Bailin said that 75 per cent of its business is “non-US”.

“Clients who come here and do investments with us are getting a pretty extraordinary range of services compared with what was the case in 2007 when we focused more on product,” he said.

“That strategy [shift] has caused us to change some things about the private bank. The office of chief investment officer is now providing first-class advice to clients, including elements such as political risk advice,” he said. Political risk analysis, in fact, has become glaringly important as the world has been roiled by such developments as debt crises in Europe and unrest in the Middle East and North Africa.

The future?

One key ambition for the private bank is to get more out of the client relations it already has. "We want to be involved in multiple banking relationships with clients. We want to lend to them and do trust and estate planning with them, and so on,” Bailin said.

The biggest challenge is tying the different functions of the private bank together in terms of technology, he said. “Due diligence checks on managers is now a global function, given the sheer importance of this responsibility.”

“We want to create heterogeneity in terms of [staff] backgrounds and consistency in terms of a team-based culture. If you think you know it all, you are not listening to the client. We learn a huge amount from our clients. They have often made a great deal of money doing extraordinary things, changing whole industries,” Bailin added.

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