Money in motion provides key target for Citi

From Wealth Management / Profiles 23 October 2010

Jane Fraser, Citi

By PWM Editor

Citi Private Bank’s open architecture approach will stand it in good stead following its restructure, believes CEO Jane Fraser. Yuri Bender reports.

Jane Fraser, CEO of Citi Private Bank, was involved in selling off of more than 20 companies worth $9bn (€6.4bn), including an in-house asset management division, before being appointed by the bank’s ultimate boss, Vikram Pandit, to head the wealth management empire running $1,860bn.

Even more impressive was her desire, and success, in holding onto some of the assets she was asked to dispose of. While internally managed funds of hedge funds and private equity vehicles were put under the hammer, HedgeForum is one unit she managed to save from the clearout.

Despite the hedge funds industry refocusing marketing efforts away from private banking to institutional customers, she confidently predicts she will treble the number of funds on the platform from 25 to 75, with a similar increase in assets from the current $3bn over three years.

“Hedge funds will remain, for the ultra high-net worth individual, an important part of any asset allocation and strong players perform well,” says Ms Fraser, who prides herself on her bank’s open architecture approach, with 98 per cent of products sold now sourced from outside the bank.

“But we do believe the way hedge funds will get bought by clients and should be advised, has changed, based on lessons learned since the crisis. You are either a distributor of house products or you are an open architecture player. The notion that you can be both is crazy.”

She says the “new Citi” culture, with the bank re-focused on client franchises rather than distribution, was “Vikram’s call”, although she was happy to carry out the re-structure, which preceded a strengthening of due diligence teams now that only externally managed hedge, private equity and real estate funds are proposed to clients.

“One element is performance, for those funds that got into trouble,” says Ms Fraser. “But the other is how are they actually running themselves?”

She recalls a recent discussion with clients in Citi’s Jakarta office during a trip to Indonesia. “The clients asked why they should buy from Citi rather than the local guys. I told them the intelligence we have on all different countries, compared to a local player, is enormous,” she says, stressing links to Citi’s Global Transaction Services (GTS) franchise, which specialises in servicing hedge funds. “Also, unlike most other banks, we are not trying to put our own product first.”

A recently secured exclusive agreement with The Carlyle Group promotes US distressed real estate to Citi’s clients, with Ms Fraser believing “there is a huge amount of money to be made if you buy the right properties,” as the US economy gradually recovers. Citi’s team also works with local players in developing economies such as Brazil and India to help strengthen the operations of funds before they are offered globally to private clients.

Her bank’s strategists identify the areas they think clients should be buying into before choosing the best provider and offering the funds under a simple pricing schedule, although like most banks, fees could be ramped up once more, when economic prospects look brighter.

“We keep fees simple as there is not enough yield out there for people to lose it to their private bank,” she says. “But we will build that up in the future when things turn good again. It is not in the client’s interest to come in with a crazy pricing schedule at the moment.”

While there seems to be a hidden agenda of boosting assets and margins, Ms Fraser can point to pioneering customer-centric initiatives, such as achieving the best adviser to client ratio across the industry, at 30:1. This was among the key reasons why Citi was selected as Best Global Private Bank by the judging panel for the PWM Global Private Banking Awards in 2010.

Hand in hand with this service ethos, is Citi Private Bank’s new focus on clients investing assets greater than $25m. “With 30 clients per banker, you need to have $25m plus to fit the type of platform we have got,” says Ms Fraser, a former McKinsey consultant used to root and branch restructures and reshaping business models. “At other big banks, with an affluent client base, the private bank is the icing on the cake, not the key proposition.”

Citi aims to be one of two lead private banks chosen by its ultra high net worth clientele, who typically have entrepreneurial, educational and family interests in several regions of the world, such as Eastern Europe, the Middle East, UK and US, demanding a sophisticated capital markets, investment-banking style proposition.

“I really do give a damn about the relationship with Citi overall, not just the private bank,” says Ms Fraser, who rose through the group’s investment bank and encourages the two to work hand in glove to engage clients around both their business and personal wealth. “This is not a job for a typical private banker servicing clients with $5m or $10m. This is for the crème de la crème, and we bring them in through the institutional division internally.”

Citi has occasionally been criticised for not having real brand penetration and strength in some growth markets, but this is dismissed by Ms Fraser, who is concentrating not just on re-shaping the US franchise, but on building up the Asian business. “We are in 142 countries and the nearest competitor is in 69 countries. There isn’t anyone who comes really close.”

Yet she recognises her restructuring initiative, aimed at capturing what she calls increasing flows of “money in motion” between banks, is very much a work in progress, with Citi suffering as much as others from lack of trust of wealth managers. “What we saw in 2009 was a lot of wealth destruction, which the industry did not do a very good job on,” she admits “We have to rebuild trust, relationship by relationship, going back to basics.”

Trying to shake off its reputation as a brokerage house from the days when it owned a majority stake in Smith Barney, sold to Morgan Stanley in 2009, Citi has moved bankers away from commission-led payments. “This will effectively prevent front-line pushing of clients into products to make short-term numbers and bankers will now be really looking at the best interests of the client.”

With product led incentives axed, customers are now told when to get out of investments which the bank feels are questionable. “We have taken a couple of funds off our platform and told clients to sell them when we saw there were operational issues,” says Ms Fraser.

A similarly powerful woman, Sallie Krawchek, previously head of Citi’s wealth management business, resigned in 2008 with a reported $11.7m exit package after disagreements with Mr Pandit, believed to have centred on reimbursing clients for defective investments.

Although Ms Fraser will not comment on the departure, her views on serving clients are clear. “We all have to take responsibility for products we sell to a client,” she says. “It is not just a case of we have sold it to you and now we can forget about it. We will tell clients to sell if something goes awry, that’s why due diligence is really important.”

Ms Fraser acknowledges Citi has the extra challenge of rebuilding a brand damaged by the US government’s $45bn bailout under the Troubled Assets Relief Programme. “It is embarrassing being bailed out by the US government and we wish it never happened, but we have worked hard under Vikram to rebuild our reputation, sold businesses representing one third of the employee base, cut costs and raised $120bn of capital,” she says.

“But Citi is now back, we are on a firm footing with 50 per cent of our returns coming from emerging markets and 50 per cent from the developed world. Our brand was damaged and our franchise was hit, but we have come back stronger.”