The US bank expects the share of client assets from the Americas to decline to a third in five years, as it targets super-rich clients worth at least $25m, instead of the merely moderately wealthy.
“People tended to think of private banks as Swiss with wood-panelled offices … and I think a torpedo has gone through that model,” Jane Fraser, head of Citi’s private banking arm, told reporters in an interview.
“Across the industry we have to re-earn client trust and that’s certainly the priority for us because the industry’s credibility is badly scarred,” she said.
Heavy losses of client money, rising pressure on banking secrecy and spectacular fraud cases like that of Bernard Madoff have tarnished the reputation of the wealth management industry, which serves millionaires and billionaires.
Citigroup has seen a net gain of clients over the last 12 months, Fraser said, reversing an earlier outflow.
Now she has set her sights on increasing the private bank’s share of Citigroup’s revenues, and hopes to take market share from rivals like UBS and Merrill Lynch.
Citi is the world’s third largest private bank by assets with around $1.3trn under management, although this includes all Citi’s wealth assets, according to consultancy group Scorpio Partnership.
Assets under management at the private bank alone are lower, Fraser said, but she did not disclose the total.
Slimmer bank
Citi does most business with wealthy clients in the Americas, particularly the US, which accounts for close to half of clients and assets, with Asia at around 30 percent – but the number is set to grow.
“That’s where a lot of the growth is going to be … That’s where a lot of the conversations [with clients] are going right now,” London-based Fraser said.
Citi moved to sell off non core assets and slim down in the wake of the financial crisis, and Fraser was a key architect of the new bank, running the divestiture programme that raised more than $20bn through the sale of 25 business units.
She has led the private bank since mid-2009 and is now upgrading it, in contrast with a severe belt-tightening drive at the group during the financial crisis.
“You can’t turn yourself into a modern private bank … if you don’t do some upgrading … and don’t invest,” she said.
Fraser estimates people are enriching themselves fast enough around the world for growth in the private banking market to be double that of global gross domestic product.
A good private bank should be able to build its market share by increasing revenues by 50 percent more than that, and Citi plans to do better still, she said.
“We would certainly look at outpacing that.”
Client dissatisfaction with badly-performing investments has made them tougher negotiators on price for private banking services, squeezing profit margins and making greater efficiency at the banks all the more urgent.
Citi Private Bank is now part of the institutional business, both because its mega-rich clients demand institutional-style services and because many of them are owners of companies using Citi’s capital markets and other capabilities.
The bank sold a controlling stake in its Smith Barney retail brokerage to Morgan Stanley, as Citi moves away from a US-style wealth management model catering to the moderately wealthy, the so called mass affluent.
