The New Kid on the Stock-Trading Block: Citigroup
Source: Dow Jones News
By Christina Rexrode
After years of cost-cutting, Citigroup Inc. is starting to invest--in equities trading, an unexpected choice for a classic bond shop.
The New York bank led by CEO Michael Corbat is pushing to become more competitive in dealing stocks and related derivatives, as well as providing support services for hedge funds and other clients to trade those securities.
Citigroup has a lot of ground to make up, and the stakes are high. The bank's traditional engines of trading revenue, bonds and currencies, are slumping due to high regulatory costs and low interest rates. Meanwhile, Citigroup ranks by some estimates a distant ninth place in global stock trading, behind rivals like Goldman Sachs Group Inc. and Morgan Stanley.
Turning the equities business around is an important test for Mr. Corbat, a 55-year-old former Salomon Brothers trader who spent his formative years dealing bonds.
"Each time they've tried to ramp it up, it's ended in frustration," says UBS Group AG analyst Brennan Hawken.
Boosting a Wall Street equities business requires a mix of enhancements involving electronic trading systems, analyst research, relationships with big investors, risk management of hedge-fund lending, and fast-paced buying and selling that unfolds on dozens of platforms. The next reading on Mr. Corbat's efforts will come Jan. 15, when Citigroup reports earnings for the fourth quarter and full year 2015.
In recent years, the CEO's pruning of various consumer-related businesses has left the bank more dependent on Wall Street activities such as trading, which accounted for about 20% of its revenue in the first nine months of the year.
Like other U.S. investment banks, Citigroup hopes to take ground from European rivals under pressure from shareholders to shrink their riskier businesses.
The job falls to Derek Bandeen, a former Morgan Stanley stock trader and Duke University fencing-team captain. Mr. Bandeen, 52 years old, has run the stock-trading division for more than seven years, a period in which Citigroup has failed to pick up much market share against larger rivals. Over the first three quarters of 2015, its ninth-place ranking among global investment banks in equities revenue compared with a second-place ranking in bond trading, according to data compiled by UBS.
A Canadian who spent one teenage summer working in the Arctic for a telephone company, the London-based Mr. Bandeen has set a goal of getting the New York bank into the top six in the equities business, while smoothing some of the recent volatility in the division's results. In the third quarter, Citigroup ranked No. 7.
"I'd like to be No. 1," says Mr. Bandeen. "But I don't think we're going there any time soon."
While Citigroup declines to discuss how much it is spending to overhaul equities, Mr. Bandeen points to a string of new hires from banks like Deutsche Bank AG, UBS and market operator Chi-X Global as a sign of its commitment. The bank has increased focus on getting business from hedge funds, where Citigroup hasn't been traditionally as strong.
In coming months, Citigroup will also roll out a new electronic platform known as Optimus 2.0, designed to get clients to trade more frequently with the firm.
Citigroup once thought about exiting the equities business because the unit was too small, but decided to keep it and make it more profitable, James Forese, Citigroup's president and a former head of equities, said at a recent conference. Mr. Forese has told colleagues that he sees similarities between stock trading and the airline business, where smaller players can be more successful.
Citigroup and analysts say the bank is better positioned than some peers to grow in equities because it already can meet a new 5% capital requirement for U.S. banks known as the supplemental leverage ratio. Citigroup's most recent reading: 6.9%
"They have a far better shot now than before," said Macquarie Securities analyst David Konrad. Citigroup is also more focused than before the financial crisis, when it pushed into stocks as part of a strategy to get bigger in everything.
In the months after Mr. Bandeen was hired in 2008, the bank accepted three rounds of U.S. government aid to get through the crisis. Since then, in a push to become smaller, it shed its wealth-management division, a giant subprime consumer lender, and branches from Boston to Hungary.
Bond trading remains a focus. In the first nine months of 2015, Citigroup's fixed-income division produced more than three times the revenue of its equities traders. At eight other global investment banks, the gap between divisions was much smaller, with fixed-income divisions generating only about 29% more revenue than equities overall.
Equities have been growing in importance, though. Over the first three quarters of 2015, stock-trading revenue on Wall Street rose 12% from 2014, while fixed-income desks suffered a 10% decline, UBS analysts said.
This week, banks will start reporting results for the fourth quarter that could show fixed-income revenue declining another 1%, compared with a gain of about 3% in equities, UBS projects.
Banks traditionally used their lending expertise in fixed income to make lucrative bets while accommodating client orders. Stock trading long ago moved to a more electronic game marked by speed, low cost, and efficiency.
Banks don't usually hold big positions in equities, which is why regulators generally view the business as less risky.
In recent months, Mr. Bandeen has hired more research analysts and encouraged a greater focus on European stock derivatives, something Citigroup executives feel the bank is in a strong position to do because of its footprint in about 100 countries.
Write to Christina Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
January 10, 2016 05:44 ET (10:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Source: Dow Jones News
By Christina Rexrode
After years of cost-cutting, Citigroup Inc. is starting to invest--in equities trading, an unexpected choice for a classic bond shop.
The New York bank led by CEO Michael Corbat is pushing to become more competitive in dealing stocks and related derivatives, as well as providing support services for hedge funds and other clients to trade those securities.
Citigroup has a lot of ground to make up, and the stakes are high. The bank's traditional engines of trading revenue, bonds and currencies, are slumping due to high regulatory costs and low interest rates. Meanwhile, Citigroup ranks by some estimates a distant ninth place in global stock trading, behind rivals like Goldman Sachs Group Inc. and Morgan Stanley.
Turning the equities business around is an important test for Mr. Corbat, a 55-year-old former Salomon Brothers trader who spent his formative years dealing bonds.
"Each time they've tried to ramp it up, it's ended in frustration," says UBS Group AG analyst Brennan Hawken.
Boosting a Wall Street equities business requires a mix of enhancements involving electronic trading systems, analyst research, relationships with big investors, risk management of hedge-fund lending, and fast-paced buying and selling that unfolds on dozens of platforms. The next reading on Mr. Corbat's efforts will come Jan. 15, when Citigroup reports earnings for the fourth quarter and full year 2015.
In recent years, the CEO's pruning of various consumer-related businesses has left the bank more dependent on Wall Street activities such as trading, which accounted for about 20% of its revenue in the first nine months of the year.
Like other U.S. investment banks, Citigroup hopes to take ground from European rivals under pressure from shareholders to shrink their riskier businesses.
The job falls to Derek Bandeen, a former Morgan Stanley stock trader and Duke University fencing-team captain. Mr. Bandeen, 52 years old, has run the stock-trading division for more than seven years, a period in which Citigroup has failed to pick up much market share against larger rivals. Over the first three quarters of 2015, its ninth-place ranking among global investment banks in equities revenue compared with a second-place ranking in bond trading, according to data compiled by UBS.
A Canadian who spent one teenage summer working in the Arctic for a telephone company, the London-based Mr. Bandeen has set a goal of getting the New York bank into the top six in the equities business, while smoothing some of the recent volatility in the division's results. In the third quarter, Citigroup ranked No. 7.
"I'd like to be No. 1," says Mr. Bandeen. "But I don't think we're going there any time soon."
While Citigroup declines to discuss how much it is spending to overhaul equities, Mr. Bandeen points to a string of new hires from banks like Deutsche Bank AG, UBS and market operator Chi-X Global as a sign of its commitment. The bank has increased focus on getting business from hedge funds, where Citigroup hasn't been traditionally as strong.
In coming months, Citigroup will also roll out a new electronic platform known as Optimus 2.0, designed to get clients to trade more frequently with the firm.
Citigroup once thought about exiting the equities business because the unit was too small, but decided to keep it and make it more profitable, James Forese, Citigroup's president and a former head of equities, said at a recent conference. Mr. Forese has told colleagues that he sees similarities between stock trading and the airline business, where smaller players can be more successful.
Citigroup and analysts say the bank is better positioned than some peers to grow in equities because it already can meet a new 5% capital requirement for U.S. banks known as the supplemental leverage ratio. Citigroup's most recent reading: 6.9%
"They have a far better shot now than before," said Macquarie Securities analyst David Konrad. Citigroup is also more focused than before the financial crisis, when it pushed into stocks as part of a strategy to get bigger in everything.
In the months after Mr. Bandeen was hired in 2008, the bank accepted three rounds of U.S. government aid to get through the crisis. Since then, in a push to become smaller, it shed its wealth-management division, a giant subprime consumer lender, and branches from Boston to Hungary.
Bond trading remains a focus. In the first nine months of 2015, Citigroup's fixed-income division produced more than three times the revenue of its equities traders. At eight other global investment banks, the gap between divisions was much smaller, with fixed-income divisions generating only about 29% more revenue than equities overall.
Equities have been growing in importance, though. Over the first three quarters of 2015, stock-trading revenue on Wall Street rose 12% from 2014, while fixed-income desks suffered a 10% decline, UBS analysts said.
This week, banks will start reporting results for the fourth quarter that could show fixed-income revenue declining another 1%, compared with a gain of about 3% in equities, UBS projects.
Banks traditionally used their lending expertise in fixed income to make lucrative bets while accommodating client orders. Stock trading long ago moved to a more electronic game marked by speed, low cost, and efficiency.
Banks don't usually hold big positions in equities, which is why regulators generally view the business as less risky.
In recent months, Mr. Bandeen has hired more research analysts and encouraged a greater focus on European stock derivatives, something Citigroup executives feel the bank is in a strong position to do because of its footprint in about 100 countries.
Write to Christina Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
January 10, 2016 05:44 ET (10:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
