Citi is being run by "operators" and it wants more banking MDs. Revelations from investor day

It's investor day at Citi. The live presentations have only just begun, but if you can't wait to hear the speeches, you can peruse the PowerPoints. 

If you can't personally peruse the PowerPoints, we have done this and we bring you news of what they contain.

Tales of talent and operators 

Since March 2021, Citi has been run by Jane Fraser. Jane Fraser has hired people like Vis Raghavan and Andy Sieg who have ruffled some feathers, but Fraser is unapologetic about this. Citi has "reset the leadership team," Fraser said today. There are now "operators running the bank."

Fraser said Citi "became a destination of choice for top talent," as a result of this reset.

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Top talent is a strong theme of today's presentations. Citi has "best in class talent" and "exceptional talent" in its banking business and is developing "generational talent," says Vis Raghavan's presentation. It has "best in class talent," agrees Andy Sieg's. 

More senior talent wanted to work under Vis Raghavan

Citi has hired new talent for its banking business under Vis Raghavan. Raghavan said today that the bank has made 60 MD hires from 20 different banks. Not all were from JPMorgan, where Raghavan himself spent much of his career before appearing at Citi two summers ago. 

The chart below, taken from Raghavan's presentation and based on insights from an unnamed consultancy firm (possibly Coalition) says Citi still needs more MDs in investment banking.  

When Raghavan arrived, the chart says Citi had 50 fewer MDs than the 75th centile of other banks. Despite the 60 new hires, it somehow now has 100 fewer MDs relative to this particular high bar. Raghavan wants to change this. 

Raghavan's presentation says Citi wants more talent for the "high growth nexus," meaning healthcare, industrials and technology. It is going for "sponsor primacy." "To deliver our ambition we need to continue investing in talent, deliberately and strategically," declared Raghavan. Quality over quantity will be the focus, Raghavan added. MD numbers will rise by another 15% overall.

Despite his apparent dearth of bankers, Raghavan has already dramatically increased market share. Citi says its investment banking client number is up 25%. Many basis points of market share have been accumulated; even in DCM. 

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Source: Citi

Citi's sales and trading business is already what Goldman Sachs said it wanted not so long ago 

Around the time that Goldman Sachs ran its first investor day in 2020, Goldman said it wanted to generate more of its sales and trading revenues from corporate clients these revenues were more steady than the rest. 

Speaking today, Andy Morton, who runs Citi's markets business, said Citi's business is already a hit with these sorts of clients. Corporates accounted for the largest cohort of markets clients at Citi last year. Morton said these clients are fuelling the sorts of "stable" revenues that increase almost irrespective of market events. 

Source: Citi

Citi really wants to increase its market share with hedge funds 

While Goldman Sachs has been trying to build its market share with corporates, Citi is trying to build its market share with hedge funds. 

Citi's resultant efforts to expand its prime broking business are well known, and Morton confirmed today that these are still occurring. 

Citi wants to increase its share with hedge funds because it wants to increase its share of equities sales and trading revenues. Morton said today that it wants to do this because a) equities account for a higher proportion of sales and trading revenues than before [see the chart below], b) Citi has been losing out to rival banks with stronger equities franchises and c) if Citi can remedy this situation, it too will have an equities sales and trading business where revenues are high and returns are too [see the Credit Suisse-style bubble chart below]. 

More specifically, Morton said equities sales and trading has become a "fixed cost business." In equities trading, Morton said you invest in technology to generate revenues at scale and then you revenues roll in without higher costs. Fixed income isn't like this.

Citi bank wants to expand elsewhere too, including into North America power and gas trading; e-trading rates latency; systematic FX trading; financing; and margin lending.

Source: Citi

Citi wants a higher return on equity, but its highest return in equity is neither in banking nor markets 

Citi has plans for its return on equity. Jane Fraser said today that the bank aspires to generate returns of 11-13% by 2027-2028 and of 14%-15% by 2029-2031. It has been observed that JPMorgan already generated 20% last year and Citi's share price has fallen by 5% accordingly. 

If Citi really wants a higher return on equity, it might want to focus on the [transaction] services business that generates half its profits. The return on equity there last year was nearly 25%.

Citi's investment bank is aiming for a winning mindset. And a "corner store mindset"

Raghavan said today that Citi's investment bank is "embedding a serial winning mindset" in its people. However, it is embedding a "corner store mindset" too. The serial winning mindset seems self-evident, the corner store mindset less so.

Raghavan explained that this corner store mindset means "relentless efficiency", "maximum impact from every expense" and person, and treating each resource as if it is your own. It does not mean selling out of date canned goods at a premium price. 

AI etc

Needless to say, Citi will be using AI. The already highly efficient services business seems most susceptible to this, but AI will be in other places too. AI will be in KYC, cybersecurity, AML investigations and sanctions and code reviews. Even now, Jane Fraser said AI is "freeing" 100,000 hours of "capacity," weekly.  There is no mention of job cuts as a result. Yet. 

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