Citigroup Fell Behind With Rich Customers. Can It Win Them Back?
Citigroup’s wealth-management business suffered a significant setback, reporting minimal profits at the end of last year compared to its $2 billion profit in 2007. The bank’s stock has consequently declined, and CEO Jane Fraser is feeling the pressure to revive the business’s fortunes. To this end, Citigroup recently poached Andy Sieg from Bank of America’s Merrill Wealth Management business, hoping that his expertise and strategic vision will lead to a turnaround.
Sieg, in an interview with The Wall Street Journal, outlined his plans to rectify the situation. He aims to reduce costs, attract wealthy individuals to invest more of their assets with Citigroup, and target customers in Asia. Sieg expressed confidence in Citigroup’s potential, stating, We have the brand, the clients, and the capabilities to be the number one wealth business in the world.
However, the journey to recovery is far from easy. In the early 2000s, Citigroup had ambitious plans to become a financial supermarket, catering to both companies and individuals worldwide. As part of divestitures following the 2008 financial crisis, Citigroup sold its wealth operations, including the Smith Barney unit, to Morgan Stanley. Meanwhile, other banks seized the opportunity to expand their wealth management businesses. Morgan Stanley capitalized on the acquisition of Smith Barney, eventually accumulating $5 trillion in client assets.
In contrast, Citigroup was left with a fragmented wealth business significantly smaller than its competitors. Despite Fraser’s efforts to consolidate and improve results, the business lagged behind revenue targets, leading to disappointment among investors. In January, Citigroup revealed the unit’s earnings for the first time in years: $5 million in the fourth quarter of 2021 and $346 million for the full year, marking a 64% drop compared to the previous year. The division’s return on tangible common equity stood at a meager 2.6%, significantly lower than its rivals.
Hired in September, Sieg aims to tackle the issues that plague the business and hamper its performance. He has urged staff to manage-up less, prompting an outpouring of support from those who attended a town hall meeting. However, the road to success is not without challenges. Competing banks, both large and small, are vying to expand in the wealth management sector. Moreover, the focus on cost-cutting may hinder Citigroup’s ability to attract top talent away from rival firms, as lucrative pay packages become harder to assemble.
Fraser’s broader strategy to increase profitability involves maximizing the range of services offered to each client, particularly targeting corporate CEOs and founders who already utilize other Citigroup services. Simultaneously, Sieg plans to reduce costs by several hundred million dollars annually, including layoffs of over 1,000 employees. Some projects have been reevaluated and eliminated, such as a program providing bank accounts to brokerage firm Edward Jones customers and the initiation of services like debit cards for U.K. private banking clients.
Sieg believes that Citigroup is too focused on loans and deposits, while the wealth business can generate revenue through investment management and fees. He highlights the disparity between Citigroup’s $1 trillion in client balances, which include investments, deposits, and loans, and the $5 trillion of investments that clients hold elsewhere. Sieg aims to foster growth by encouraging clients to bring more of their investments to Citigroup. The bank is monitoring the amount of new assets clients bring, with private bankers’ bonuses now tied more heavily to the investments they attract.
Expanding Citigroup’s wealth products in Asia is another strategic priority for Sieg. Being the only major U.S. bank with branches in Singapore and Hong Kong lends Citigroup advantageous positioning and reputation within the local market. Sieg aims to leverage this advantage to attract more customers in Asia, despite the fact that Citigroup’s wealth business is currently not the leading player.
While these plans offer hope for reviving Citigroup’s wealth-management business, challenges and uncertainties lie ahead. Competing against other banks and regaining the trust and investment of wealthy clients will require decisive and effective action. Citigroup’s long road to recovery since the financial crisis prompts a critical question: Can it win back its rich customers and restore its position as a leading wealth business in the world? Only time will tell.
