Daily Management Review

While Other Banks Shy Away, Citi Aims to Boost Equities Franchise


While Other Banks Shy Away, Citi Aims to Boost Equities Franchise
In a bid to capitalize on a retrenchment by rivals in the face of new rules designed to make the financial system less risky, the Citigroup plans to rebuild its long-neglected equities franchise, reports the Reuters.

The No. 3 U.S. bank by assets was placed in the lower echelons of equities league tables due to a lack of investment in equities and a traditional focus on bond trading.

However experts are of the opinion that despite the Citigroup’s reported attempts, it will not be easy to dislodge leaders such as Goldman Sachs Group, Morgan Stanley, and JPMorgan Chase & Co.

By spinning off non-core assets, Citigroup has been able to shore up its business and capital ratios since the financial crisis and now aims to profit from a retreat of rivals that were slow in adapting to new rules. The new rules force banks to keep more capital reported Reuters quoting bank insiders.

Some of the notable names in banking business like Deutsche Bank, Credit Suisse and Barclays are in the process of re-aligning their investment banking businesses. Te realignment has resulted in the losing out of popularity of less capital-intensive businesses such as wealth management against prime brokerage units, which provide loans and other services to hedge funds.

Sources said to Reuters that Citi plans to pursue hedge funds more actively in an attempt to boost equities market share as a part of their four-point plan.  

Overhaul of Citi's trading technology, hiring key executives, expanding research and boosting the unit's financing are the key strategies that the bank has adopted, said the source.

Some examples of key recruitments include the appointment of former Chi-X Global chief John Lowrey as the head of its electronic execution unit and ex-UBS executive Adam Herrmann to run prime brokerage.

To support its investment advisory business, the bank has already hired 11 analysts so far this year apart from increasing financing of the unit in general reported the Reuters.

The primary focus of Citi bank I snow shifting from asset managers to hedge funds that have the potential to trade more actively and get back higher returns through fees. Citi is eyeing mid-sized firms by offering them services such as risk systems, credit monitoring, and trading algorithms. These firms are more attractive compared to bigger rivals.

The bank is ready to strategically invest in the unit and will do so at a measured pace after years of under investment and cuts in the equities franchise, said Reuters reported quoting the Citi bank source.
Citi also plans to expanding its institutional market making business by putting its capital to work through the buying and selling of large blocks of stocks or derivatives from clients.

“Optimus”, a product that helps clients select trading algorithms has already been rolled out in the United States and plans to launch in Europe will be realized soon. This is an effort of the bank to push technology in its business. By recording and analysing different aspects of the clients' orders, such as size, speed, and market momentum, “Optimus” picks the appropriate algorithms to scan the market for other orders that have those same qualities.

Citi was forced to take a $45 billion government bailout package following the losses it suffered after the 2008-2009 financial crisis and the bank I snow trying to reorganizes trough the efforts to boost its equities revenues.